Estimating Yield Curves by Kernel Smoothing Methods
We introduce a new method for the estimation of discount functions, yield curves and forward curves for coupon bonds. Our approach is nonparametric and does not assume a particular functional form for the discount function although we do show how to impose various important restrictions in the estimation. Our method is based on kernel smoothing and is deﬁned as the minimum of some localized population moment condition. The solution to the sample problem is not explicit and our estimation procedure is iterative, rather like the backﬁtting method of estimating additive nonparametric models. We establish the asymptotic normality of our methods using the asymptotic representation of our estimator as an inﬁnite series with declining coeﬀicients. The rate of convergence is standaxd for one dimensional nonparametric regression.
Linton, Oliver B.; Mammen, E.; Nielsen, Jens Perch; and Tanggaard, C., "Estimating Yield Curves by Kernel Smoothing Methods" (1998). Cowles Foundation Discussion Papers. 1453.