Comparison of Nelson-­Siegel and Svensson models in the optimization of yield curves in the Costa-­Rican market

Abstract

In a study of optimization of yield curves for zero-­‐‑coupon and forward rates, we compare the Nelson-­‐‑Siegel and Svensson models for a set of observed prices of bonds of Government of Costa Rica. In both models the problem consists of fitting the yield curve and selecting sub-­‐‑optimal parameters of functions in a non-­‐‑linear family. We obtain better results using the Nelson-­‐‑Siegel model, despite the fact that the Svensson model is a generalization of the former. We discuss the method, some results obtained and an implementation of these methods in the Costa-­‐‑Rican stock-­‐‑ exchange market.