Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/258347 
Year of Publication: 
2022
Citation: 
[Journal:] Risks [ISSN:] 2227-9091 [Volume:] 10 [Issue:] 2 [Article No.:] 36 [Publisher:] MDPI [Place:] Basel [Year:] 2022 [Pages:] 1-18
Publisher: 
MDPI, Basel
Abstract: 
We compare parametric and machine learning techniques (namely: Neural Networks) for in-sample modeling of the yield curve of the BRICS countries (Brazil, Russia, India, China, South Africa). To such aim, we applied the Dynamic De Rezende-Ferreira five-factor model with time-varying decay parameters and a Feed-Forward Neural Network to the bond market data of the BRICS countries. To enhance the flexibility of the parametric model, we also introduce a new procedure to estimate the time varying parameters that significantly improve its performance. Our contribution spans towards two directions. First, we offer a comprehensive investigation of the bond market in the BRICS countries examined both by time and maturity; working on five countries at once we also ensure that our results are not specific to a particular data-set; second we make recommendations concerning modelling and estimation choices of the yield curve. In this respect, although comparing highly flexible estimation methods, we highlight superior in-sample capabilities of the neural network in all the examined markets and then suggest that machine learning techniques can be a valid alternative to more traditional methods also in presence of marked turbulence.
Subjects: 
Artificial Neural Network (ANN)
BRICS
De Rezende-Ferreira model
emerging markets
Feed-Forward Neural Network (FFNN)
term structure
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
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