Christensen, Jens H.E. <br/><br/>
An Arbitrage-Free Generalized Nelson-Siegel Term Structure Model / 
Jens H.E. Christensen, Francis X. Diebold, Glenn D. Rudebusch. 
 - Cambridge, Mass.  National Bureau of Economic Research  2008. 
 - 1 online resource:  illustrations (black and white); 
 - NBER working paper series  no. w14463 .
 - Working Paper Series (National Bureau of Economic Research)  no. w14463. .
<br/><br/> November 2008. 
<br/><br/> The Svensson generalization of the popular Nelson-Siegel term structure model is widely used by practitioners and central banks. Unfortunately, like the original Nelson-Siegel specification, this generalization, in its dynamic form, does not enforce arbitrage-free consistency over time. Indeed, we show that the factor loadings of the Svensson generalization cannot be obtained in a standard finance arbitrage-free affine term structure representation. Therefore, we introduce a closely related generalized Nelson-Siegel model on which the no-arbitrage condition can be imposed. We estimate this new arbitrage-free generalized Nelson-Siegel model and demonstrate its tractability and good in-sample fit. 
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