dorsal/arxiv
View SchemaAb initio yield curve dynamics
| Authors | Raymond J. Hawkins, B. Roy Frieden, Joseph L. D'Anna |
|---|---|
| Categories | |
| ArXiv ID | physics/0507098 |
| URL | https://arxiv.org/abs/physics/0507098 |
Abstract
We derive an equation of motion for interest-rate yield curves by applying a minimum Fisher information variational approach to the implied probability density. By construction, solutions to the equation of motion recover observed bond prices. More significantly, the form of the resulting equation explains the success of the Nelson Siegel approach to fitting static yield curves and the empirically observed modal structure of yield curves. A practical numerical implementation of this equation of motion is found by using the Karhunen-Loeve expansion and Galerkin's method to formulate a reduced-order model of yield curve dynamics.
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"date_modified": "2026-03-02T18:01:00.454000Z",
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"abstract": "We derive an equation of motion for interest-rate yield curves by applying a\nminimum Fisher information variational approach to the implied probability\ndensity. By construction, solutions to the equation of motion recover observed\nbond prices. More significantly, the form of the resulting equation explains\nthe success of the Nelson Siegel approach to fitting static yield curves and\nthe empirically observed modal structure of yield curves. A practical numerical\nimplementation of this equation of motion is found by using the Karhunen-Loeve\nexpansion and Galerkin\u0027s method to formulate a reduced-order model of yield\ncurve dynamics.",
"arxiv_id": "physics/0507098",
"authors": [
"Raymond J. Hawkins",
"B. Roy Frieden",
"Joseph L. D\u0027Anna"
],
"categories": [
"physics.data-an",
"cond-mat.stat-mech",
"q-fin.GN"
],
"title": "Ab initio yield curve dynamics",
"url": "https://arxiv.org/abs/physics/0507098"
},
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"type": "Model",
"variant": "snapshot-2026-03-01",
"version": "0.1.0"
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