Fluctuation model of JGB yield curve using machine learning and the interest rate prediction

Abstract

In this research, I have developed a prediction model of long-term interest rate (long-term government bond yield) using machine learning method (SVM, nonlinear SVM, decision tree, RF, logistic regression, LSTM). As a result, it was confirmed that the accuracy of the LSTM-based model is relatively higher in the long-term interest rate prediction than the other models. Furthermore, long-term interest rate is influenced by interest rate fluctuations in the surrounding maturity due to the influence of arbitrage transactions. Therefore, I constructed a fluctuation model of the yield curve incorporating the relationship between long-term interest rate and the other maturity rates in the form of extending the above-mentioned LSTM-based prediction model. As a result, when using the yield curve fluctuation model for predicting long-term interest rate, some improvement was seen in the prediction accuracy of long-term interest rate.