A Functional Examination and Estimation of the Yield Curve Involving the Bliss Three Factor Model
Keywords:
Bliss three-factor, Console rate, Decay factors, Euro-bond, Term structureAbstract
This study addresses the lack of an established analytic model for generating yield curves in Nigeria. The study employs the three-factor Bliss parsimonious function to model yield and forward curves. The objectives are to derive the console rate and short-term rate, to predict the in-sample performance of the Nigerian Eurobond under the Bliss model, to investigate the impact of time to maturity on the term structure of interest rates, and to derive the yield function from the forward rate. The ordinary least squares (OLS) technique is utilized to estimate model parameters, which are further used to estimate the in-sample yield. The goodness of fit was conducted to validate the model's accuracy. The goodness of fit test, as indicated by the high adjusted R-squared value, confirms that the model accurately represents the observed yield data for the given year. This demonstrates the model's robustness and reliability in predicting yields based on the Bliss three-factor model. The application of the Bliss three-factor parsimonious function and the successful fitting of yield curves with economically interpretable parameters provide a novel contribution to the field. The findings offer valuable insights for financial regulators and market participants in understanding and predicting yield behaviors and economic expectations in the Nigerian context.
References
Barvinok, V. Yu., Artyukhova, N. O., Marci, A., Polishchuk, I. R., Vasylieva, T. A. (2023). Structuring “education – migration – labour market” chain. Scientific Bulletin of the National Mining University. (6), 149-155.
Baskot, B., Orsag, S., & Mikerevic, D. (2018). Yield Curve in Bosnia and Herzegovina: Financial and macroeconomic framework. UTMS Journal of Economics, 9(1), 1–15.
Bazaluk, O., Kader, S. A., Zayed, N. M., Chowdhury, R., Islam, M. Z., Nitsenko, V. S., & Bratus, H. (2024a). Determinant on economic growth in developing country: A special case regarding Turkey and Bangladesh. Journal of the Knowledge Economy, 1-25.
Bazaluk, O., Rahman, M. A., Zayed, N. M., Nitsenko, V., & Kucher, L. (2024b). Crowdsourcing review: The crowd workers’ perspective. Journal of Industrial and Business Economics, (51) 1-20.
Bliss, R.R. (1997). Testing term structure estimation methods. Advances in Futures Options Research, 9, 197–232.
Castello, O., & Resta, M. (2022). Modelling the yield curve of BRICS countries. Parametric vs. machine learning techniques. Risks, 10(36), 1-18.
Diebold, F. X., & Li, C. (2006). Forecasting the term structure of government bond yields. Journal of Econometrics, 130(2), 337–364.
Due, D., & Rui, K. (1996). A yield-factor model of interest rates. Mathematical Finance, 6(4), 379–406.
Frois Caldeira, J., Gupta, R., Suleman, M. T., & Torrent, H. S. (2020). Forecasting the Term Structure of Interest Rates of the BRICS: Evidence from a Nonparametric Functional Data Analysis. Emerging Markets Finance and Trade, 57(15), 4312–4329.
Ishii, H. (2018). Modeling and predictability of exchange rate changes by the extended relative Nelson–Siegel class of models. International Journal of Financial Studies, 6, 68.
Ishii, H. (2019). Forecasting the Term Structure of Interest Rates in Japan. International Journal of Financial Studies, 7(3), 39–39.
Kader, S. A., Zayed, N. M., Faisal-E-Alam, M., Salah Uddin, M., Nitsenko, V., & Klius, Y. (2022). Factors affecting demand and supply in the housing market: A Study on Three Major Cities in Turkey. Computation, 10(11), 196.
McCulloch, J. H. (1971). Measuring the term structure of interest rates. The Journal of Business, 44, 19-31.
Mia, M. A., Khalil, M. I., & Darda, M. A. (2023a). Effect of asset and equity structures on financial distress: A study on private commercial banks in Bangladesh. Daffodil International University Journal of Business and Entrepreneurship, 16(2), 141-155.
Mia, M. M., Shamsudin, M. F., Zayed, N. M., Mirzoieva, T. V., Shtuler, I. Y., & Bogma, O. S. (2023b). Crowdsourcing for business strategy and sustainability: A partial least square structural equation model. Scientific Bulletin of National Mining University, 3, 184-193.
Mineo, E., Alencar, A. P., Moura, M., Fabris A. E. (2020). Forecasting the term structure of interest rates with dynamic constrained smoothing B-Splines. Journal of Risk and Financial Management, 13, 65.
Mollah, M. A. S., Kamal, M., & Edeh, F.O. (2023). Volatility and momentum: Evidence from Dhaka Stock Exchange, Bangladesh. Daffodil International University Journal of Business and Entrepreneurship, 16(2), 53-72.
Muvingi, J., & Kwinjo, T. (2014). Estimation of term structures using Nelson-Siegel and Nelson-Siegel-Svensson: A case of Zimbabwean Bank. Journal of Applied Finance and Banking, 4(6), 155-190.
Nelson, C.R., & Siegel, A. F. (1987). Parsimonious modelling of yield curves. The Journal of Business, 60, 473-489
Sang-Heon, L. (2024). An essential approximation of the arbitrage free Nelso-Siegel-Svensson Term structure model. Elsevier, 1-27.
Sayed, I. A. (2023a). Four sectors model and Bangladesh economy. Daffodil International University Journal of Business and Entrepreneurship, 16(2), 98-111.
Sayed, I. A. (2023b). Salient features of the monetary policy statement of Bangladesh Bank. Daffodil International University Journal of Business and Entrepreneurship, 16(2), 38-52.
Shiratsuka, S. (2024). What does the curve control policy do? Institute for Economic Studies Keio University. Keio-IES Discuss Paper Series. 1-26.
Smerichevska, S., Miahkykh, I., & Yeletskykh, S. (2022). Financial and economic narratives for evaluation of innovative potential of enterprises. Scientific Bulletin of the National Mining University, (1), 145–152.
Tanchi, K. R., Kamruzzaman, M., Rahman, S. N., Rahman, A. A. A., & Thapa, P. P. (2023). Factors influencing investors’ decisions: Evidence from stock markets in Bangladesh. Daffodil International University Journal of Business and Entrepreneurship, 16(2), 127-140.
Zayed, N. M., Mohamed, I. S., Islam, K. M. A., Perevozova, I., Nitsenko, V., & Morozova, O. (2022). Factors influencing the financial situation and management of small and medium enterprises. Journal of Risk and Financial Management, 15(12), 554.
