Yield Curve Modeling and Forecasting by Diebold Francis X.; Rudebusch Glenn D.;

Author:Diebold, Francis X.; Rudebusch, Glenn D.;
Language: eng
Format: epub
Publisher: Princeton University Press
Published: 2012-02-26T16:00:00+00:00

so the Litzenberger et al. and DNS approaches are equivalent in the one-factor case. In the multifactor case, however, a sum of factors in the yield curve will not be a sum in the discount curve (the log of a sum is not the sum of the logs), so there is generally no simple mapping between the two approaches.

4.1.3 Yield Spreads

Nelson-Siegel yield curves are closed under conversion to spreads. That is, if two term structures of yields (τ) and (τ) follow DNS with the same λ, then the term structure of spreads also follows DNS. In particular, if

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