We estimate the long rate and its volatility within the Svensson framework. The procedure that best extrapolates the longest observable rate and its volatility is a 2-dimensional grid search conditioned on the ridge regression suggested by Annaert et al. (2013).

The Nelson–Siegel model is widely used in practice for fitting the term structure of interest rates. Due to the ease in linearizing the model, a grid search or an OLS approach using a fixed shape parameter are popular estimation procedures. The estimated grid search parameters, however, have...