This Paper compares McCulloch’S Cubic Spline and Nelson-Siegel Parsimonious
Models in Korea bond Market for March 2000~May 2000
There are two methods to compare the interest rates term structure models.First is to compare the goodness of fitting at In-Sample and Out-of-Sample and Second is to compare the smoothness of the models.
The fitting’s result is that Cubic Spline is found out to has less the price error than Nelson-Siegel in sample and Out-of-Sample estimations. But the result is not significant in statisical comparison.
And the Nelson-Siegel is better than Cubic Splie that there is no the negative forward interest rate and spot rate at Nelson-Siegel .This is a comparative method of the smoothness. The Nelson-Siegel can exclude the negative forward rate and spot rate by the nature of the function but Cubic Spline can not exclude the negative forward rate and spot rate by the nature of the function.
