  We present an arbitrage-free non-parametric yield curve prediction model
which takes the full (discretized) yield curve as state variable. We believe
that absence of arbitrage is an important model feature in case of highly
correlated data, as it is the case for interest rates. Furthermore, the model
structure allows to separate clearly the tasks of estimating the volatility
structure and of calibrating market prices of risk. The empirical part includes
tests on modeling assumptions, back testing and a comparison with the
Vasi\v{c}ek short rate model.
