Abstract
We present a novel method for modeling yield curves using rational Chebyshev functions. Our motivation is based on both their suitable mathematical properties as well as their successful application record, mainly in nonfinancial areas. We provide an interpretation of the proposed model in terms of a level–slope–curvature perspective, and we indicate methods for identifying the model’s parameters based on this interpretation. We present the results of in-sample and out-of-sample tests of the proposed model in comparison with popular parsimonious models. The tests indicate that the proposed model is competitive in terms of its performance as well as its properties.
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