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Pricing Partners Strengthens the Yield Curve Modelling with the Nelson Siegel Svensson Model

Pricing Partners, the world leader in OTC derivatives pricing analytics, mathematical models and independent valuation, announced today to unveil the Nelson Siegel Svensson Model for modelling the yield curve to reinforce its derivatives pricing and risk analytics.

The yield curve has been one of the most important drivers to describe fixed-income instruments performance. The Nelson Siegel Svensson model famous for its good behaviour at long maturities is widely used for modelling the yield curve. Its parameters can be set to model virtually any yield curve. With the new added model in Price-it, clients are allowed to construct efficiently smooth interest rate curve bond prices or zero rate. By using this model, the zero rate becomes a smooth function of time. Indeed, the parameters of the smoothing function are optimized to the market points.

Dr. Mohammed Miri, Head of Research & Development at Pricing Partners comments: “The Nelson Siegel Svensson model is particularly useful when you have only a few instruments. In Price-it, this model could also be applied to bond instruments pricing. This approach enables us to have a smooth behaviour of the zero rate according to time. Moreover, the extrapolation for long maturities is more consistent. Last but not least, the users can set their own optimization constraints.

Eric Benhamou, CEO of Pricing Partners added: “This development is strengthening our leadership in analytics. Interestingly, the current environment motivates us to revisit the basics and add more sophistication to basic building blocks like yield curve modelling. The Nelson Siegel Svensson approach enables us to calibrate more efficiently on bonds, which is part of this new trends to enrich the methodology for simple products and add better granularity on simple trades and modelling. Pricing Partners will continue to drive innovation with a clear focus on analytics and new ideas on basics to make sure that our clients use the latest technology to price and risk-manage derivatives.”