- #1
sorensen
- 1
- 0
The problem is to estimate a zero-coupon yield curve for up to 5 years ahead, knowing (for time t=0) the following:
bond 1: coupon 6.5, maturity - 1 year, price = 103
bond 2: coupon 5, maturity - 2 years, price = 102
bond 3: coupon 4.2, maturity - 3 years, price = 100
bond 4: coupon 6.5, maturity - 4 years, price = 104
bond 5: coupon 5.2, maturity - 5 years, price = 99
price of a 1-week treasury bill of face value=100, is 99.94
I have digged through several papers on modelling yield curves and still am stuck. Given the relatively not-advanced-at-all mathematical prerequisites needed for the financial maths class I'm attending, i shyly presume that i should use a Nelson-Siegel-Svensson model here. Then - please correct me if I'm wrong - the task in fact is to solve an optimization problem of finding the parameters that generate theoretical prices for the given bonds and a bill that are the closest to their given market prices (using some MSE or RMSE estimator i guess).
How to implement that however is a mystery for me. Are such problems to be solved in some sophisticated maths software? Since the optimization problem here is non-linear i think it can't be 'treated' by Excel Solver (which i happen no to have anyway)?
I'd be thankful for any hint about this.
And by the way please excuse me for my lousy foreigner-vocabulary. ;)
bond 1: coupon 6.5, maturity - 1 year, price = 103
bond 2: coupon 5, maturity - 2 years, price = 102
bond 3: coupon 4.2, maturity - 3 years, price = 100
bond 4: coupon 6.5, maturity - 4 years, price = 104
bond 5: coupon 5.2, maturity - 5 years, price = 99
price of a 1-week treasury bill of face value=100, is 99.94
I have digged through several papers on modelling yield curves and still am stuck. Given the relatively not-advanced-at-all mathematical prerequisites needed for the financial maths class I'm attending, i shyly presume that i should use a Nelson-Siegel-Svensson model here. Then - please correct me if I'm wrong - the task in fact is to solve an optimization problem of finding the parameters that generate theoretical prices for the given bonds and a bill that are the closest to their given market prices (using some MSE or RMSE estimator i guess).
How to implement that however is a mystery for me. Are such problems to be solved in some sophisticated maths software? Since the optimization problem here is non-linear i think it can't be 'treated' by Excel Solver (which i happen no to have anyway)?
I'd be thankful for any hint about this.
And by the way please excuse me for my lousy foreigner-vocabulary. ;)