ESTIMATION OF THE TERM STRUCTURE OF YIELD CURVE IN BRAZIL USING PARAMETRIC AND NON-PARAMETRIC MODELS

Abstract

The present paper compares the principal methods for interpolation and adjustment of the yield curve and presents the main concepts relative to the curve, which are of great importance for both policy makers and market participants in general, especially those who directly participate in managing portfolios of fixed income securities. The results show the superiority of non-parametric models in relation to parametric models with respect to the adjustment of the yield curve. On the other hand, the economic interpretation of the factors that make up the parametric models and their good performance to predict the yield curve has drawn much attention from both researchers and market participants in recent years.