Journal of Finance and Economics, 2017, Vol. 5, No. 6, 300-309 Available online at http://pubs.sciepub.com/jfe/5/6/6 ©Science and Education Publishing DOI:10.12691/jfe-5-6-6 Yield Curve Estimation: An Empirical Evidence from the Tunisian Bond Market Aziz Chouikh 1,* , Rania Yousfi 2 , Chehir Chehibi 3 1 Department of Finance, Assistant Professor of Finance at the Mediterranean School of Business, South Mediterranean University, Tunis, Tunisia, and Assistant Professor of Finance at FSJEG, University of Jendouba, Jendouba, Tunisia 2 Department of Finance, the Mediterranean School of Business, South Mediterranean University, Tunis, Tunisia 3 Department of Finance, Lecturer at the Mediterranean School of Business, South Mediterranean University, Tunis, Tunisia *Corresponding author: aziz.chouick@msb.tn;azizchouikh@gmail.com Abstract Our paper aims to model the yield curve that corresponds to a graphical representation of the yields offered by the bonds of the same issuer according to their maturity, from the shortest to the longest expiration date in the Tunisian bond market (TBM). To get to our objective, we will compare the Nelson-Siegel modeling strategy, which is most often used for the analysis and the hedging of the interest rate risk of portfolios with known flows in practice, to the Svensson modeling strategy, which is the extension of the Nelson-Siegel model. Our sampling data statistically support the evidence that the more appropriate yield curve for the TBM is that estimated by the Nelson- Siegel model. Keywords: Yield-curve, Nelson-Siegel-Svensson model, Spline, Yield-to-maturity, interest rate Cite This Article: Aziz Chouikh, Rania Yousfi, and Chehir Chehibi, “Yield Curve Estimation: An Empirical Evidence from the Tunisian Bond Market.” Journal of Finance and Economics, vol. 5, no. 6 (2017): 300-309. doi: 10.12691/jfe-5-6-6. 1. Introduction Our paper aims to better understand the behavior of the yield curve in order to be able to create a more efficient and reliable one. Our yield curve will be essentially based on the Nelson Siegel and the Svensson models since those are widely used amongst the financial institutions and adapted to less liquid and less developed markets similar to the Tunisian bond market (TBM). The Nelson-Siegel and Svensson models are zero-coupon parametric models with the advantage of taking into account the different deformations of the yield curves, to allow a dynamic analysis of the market with time-varying parameters that are estimated from market data, and represent the curve by a smooth surface. With the aim of facilitating for investors the access and consultation of all monetary-rate and bond-rate curves currently broadcast in Tunisia, Tunisie Clearing (TC) 1 has launched an information centralization initiative on its website. In March 2016, TC started publishing a yield curve for treasury bills inspired by the practices of different markets around the world. While working with the available information on TC website, a gap has appeared. The data used to make the yield curve reflect the whole market for intra primary dealer operations and all the operations that are out of the market which leads us to think that TC yield curves may 1 Tunisie Clearing is a Central Depository for Securities and a Manager of the Securities Settlement System, daily displays the zero-coupon curve. be biased, so it is mandatory to point out a yield curve which is more reliable and efficient. To do so, we will estimate the yield curve via Nelson- Siegel and Svensson models. Then we will compare them to TC’s yield curve, and we will choose the best one as a benchmark for the TBM. The remainder of our paper is organized as follows. Section 2 deals with the literature review. Section 3 points out the yield curve modeling framework. Section 4 copes with the empirical methodology. In section 5, we run the yield curve estimations. Section 6 exhibits results and findings. Finally, in section 7, we conclude. 2. Literature Review The term interest rate structure (or yield curve) is the function that, combines on a given date, the level of the associated interest rate for each maturity. According to Gbongue & Frederic Planchet [1], there are two families of yield curves, market curves and implied curves: Market curves are constructed directly from the market quotations. It is about the swap curve and yield curve of government bonds. Implied curves are constructed indirectly from the market quotations for instruments such as bonds and swaps (zero-coupon (ZC) yield curve, forward yield curve, instant forward yield curve and finally yield curve at par). The literature provides two methods to construct a ZC curve; the bond pricing approaches and approaches to yields. An abundant literature exists on the methods of construction of the yield curve. They can be grouped into two main groups: those using parametric methods and