Estimating the Yield Curve for the Malaysian Bond Market Using Parsimony Method

Abstract

Abstract The yield curve is an indicative of the level element bonds in the world prices of fixed income securities investment. It is used to predict interest rate, estimating the price of a security and as an indicator of the balance between maturity and yield. This study focuses on the comparison level of accuracy and appropriateness of the yield curve by the time interval for selecting the best method for producing the bond market yield curve in Malaysia. There are three parsimonious models that were applied in this study, namely Nelson-Siegel (NS), Nelson-Siegel-Svensson (NSS) and Extended-Nelson-Siegel (NSE). This study applied the data from Malaysian Government Securities (MGS) for the three days which are 31 January 2015, 15 February 2015 and 28 February 2015. The yield curve generated by the price expectations derived from the three models were then analyzed by Statistical methods such as RMSYE, MSE, RMSE and R2.