A multiobjective approach using consistent rate curves to the calibration of a Gaussian Heath-Jarrow-Morton model

Antonio Falcó (), Juan Nave and Lluís Navarro
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Antonio Falcó: Universidad CEU Cardenal Herrera
Juan Nave: Universidad de Castilla-La Mancha
Lluís Navarro: Universidad CEU Cardenal Herrera

Working Papers. Serie AD from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

Abstract: In this paper we propose an alternate calibration algorithm, by using a consistent family of yield curves, that fits a Gaussian Heath-Jarrow-Morton model jointly to the implied volatilities of caps and zero-coupon bond prices. The algorithm is capable for finding several Pareto optimal points as is expected for a general nonlinear multicriteria optimization problem. The calibration approach is evaluated in terms of in-sample data fitting as well as stability of parameter estimates. Furthermore, the efficiency is tested against a non-consistent traditional method by using simulated and US market data.

Keywords: HJM models; consistent forward rate curves; multiobjective calibration (search for similar items in EconPapers)
JEL-codes: C13 E43 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2008-04
New Economics Papers: this item is included in nep-ecm and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:ivi:wpasad:2008-09

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