Journal of Risk Model Validation

Risk.net

Validation of term structure forecasts with factor models

Alexander B. Matthies

ABSTRACT

The predictive content of dynamic factor models in term structure modeling is evaluated and validated. Under a purely statistical data-driven approach, different sets of variables, estimation and forecasting methods are compared. In this way, central assumptions of standard term structure factor models are tested. We find that the inclusion of macroeconomic variables is useful to improve forecasts. Furthermore, a combination of static representation for factor estimation and autoregressive factor forecasts produces superior forecasts. These results confirm the statistical assumptions of term structure models made in prior research.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to Risk.net? View our subscription options

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here