Unformatted text preview: A popular model is the Nelson-Siegel family with forward rate r ( t ; θ 1 ,θ 2 ,θ 3 ,θ 4 ) = θ 1 + ( θ 2 + θ 3 t )exp(-θ 4 t ) Fit this forward rate to the prices by nonlinear regression using R ’s optim function. (a) What are your estimates of θ 1 , θ 2 , θ 3 , and θ 4 ? (b) Plot the estimated forward rate and estimated yield curve on the same ﬁgure. Include the ﬁgure with your homework. 1...
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- Forward rate, D. Ruppert