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arXiv · 2510.21347

Robust Yield Curve Estimation for Mortgage Bonds Using Neural Networks

Sina Molavipour·Alireza M. Javid·Cassie Ye·Björn Löfdahl·Mikhail Nechaev
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Abstract

Robust yield curve estimation is crucial in fixed-income markets for accurate instrument pricing, effective risk management, and informed trading strategies. Traditional approaches, including the bootstrapping method and parametric Nelson-Siegel models, often struggle with overfitting or instability issues, especially when underlying bonds are sparse, bond prices are volatile, or contain hard-to-remove noise. In this paper, we propose a neural networkbased framework for robust yield curve estimation tailored to small mortgage bond markets. Our model estimates the yield curve independently for each day and introduces a new loss function to enforce smoothness and stability, addressing challenges associated with limited and noisy data. Empirical results on Swedish mortgage bonds demonstrate that our approach delivers more robust and stable yield curve estimates compared to existing methods such as Nelson-Siegel-Svensson (NSS) and Kernel-Ridge (KR). Furthermore, the framework allows for the integration of domain-specific constraints, such as alignment with risk-free benchmarks, enabling practitioners to balance the trade-off between smoothness and accuracy according to their needs.

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Sina Molavipour, Alireza M. Javid, Cassie Ye, Björn Löfdahl, Mikhail Nechaev. 2025-10-24. Robust Yield Curve Estimation for Mortgage Bonds Using Neural Networks. https://arxiv.org/abs/2510.21347

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