 In practice, the Nelson-Siegel function has the advantages that it is well-behaved at long maturities, and that its parameters can be set to model virtually any yield curve (see Nelson and Siegel [1987]).A factor-based model of yield curve movements is calculated by deriving the covariance matrix of yield shifts at predefined maturities, and calculating the eigenvectors and eigenvalues of this matrix.Each eigenvector corresponds to a fundamental model of the yield curve, and each eigenvector is orthogonal, so that the curve movement on any given day is a linear combination of the basis eigenvectors.