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Negative interest rates are present in various market places since mid-2014, following the Negative Interest Rate Policy (NIRP) adopted by the European Central Bank in order to lift growth or inflation. This spans difficulties for many market practitioners as there is not yet any model which enables to handle negative interest rates in a coherent and sounding theoretical manner. Facing this lack of reliable model, the well-known Historical Approach (HA) appears to be a good recourse. By tweaking the HA, we derive a data-driven and very tractable tool allowing various users to generate a distribution forecast of the yield curves at future discrete time horizon. So we provide here a robust and easy-to-understand reference forecasting model, suitable for the NIRP context, allowing to appreciate the prediction power
of any ongoing alternative parametric model. Besides the methodology development, various experiments are also reported here in order to shed light in depth on the benefit and limit of our forecasting approach.
Author(s):
Jae Yun Jun Kim
ECE Paris
France
Victor Lebreton
Quant Hedge
France
Yves Rakotondratsimba
ECE Paris
France