The yield curve

The yield curve underlines a very simple and intuitive principle. I’ll illustrate it with a relatively absurd example.

Imagine you wanted to lend me some money (the absurd bit). You would naturally demand an interest rate which depended on the length of time over which the loan would be paid back.

You can see some nice plots of the yield curve. The US, German and Japanese yield curves are shown below.

US

Germany

Japan

Functional time-series, a topic I am looking into at the moment in my research to detect anomalies provides one way to study these objects. It views them a series of functions observed on natural consecutive periods (days).

Some papers I have found so far include 1, 2, 3, 4 and 5.

An interesting potential topic for research (possibly already been done) would be to look at the evolution of yield curves for different countries over time.

  1. https://robjhyndman.com/talks/Berlin4.pdf 

  2. https://www.semanticscholar.org/paper/The-Dynamics-of-Economic-Functions-%3A-Modelling-and-Bowsher-Meeks/3eaddb9bb60edf0dd3a65d3477e26900ee1f55f9 

  3. https://arxiv.org/pdf/1209.6172.pdf 

  4. https://www.stat.colostate.edu/~piotr/kokoszkaYoung2017.pdf 

  5. https://www.statistics.gov.hk/wsc/STS073-P2-S.pdf 

Written on February 3, 2019