A general HJM framework for multiple yield curve modelling

Christa Cuchiero (), Claudio Fontana () and Alessandro Gnoatto
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Christa Cuchiero: University of Vienna
Claudio Fontana: Université Paris Diderot

Finance and Stochastics, 2016, vol. 20, issue 2, No 1, 267-320

Abstract: Abstract We propose a general framework for modelling multiple yield curves which have emerged after the last financial crisis. In a general semimartingale setting, we provide an HJM approach to model the term structure of multiplicative spreads between FRA rates and simply compounded OIS risk-free forward rates. We derive an HJM drift and consistency condition ensuring absence of arbitrage and, in addition, we show how to construct models such that multiplicative spreads are greater than one and ordered with respect to the tenor’s length. When the driving semimartingale is an affine process, we obtain a flexible and tractable Markovian structure. Finally, we show that the proposed framework allows unifying and extending several recent approaches to multiple yield curve modelling.

Keywords: Multiple yield curves; HJM model; Semimartingale; Forward rate agreement; Libor rate; Affine processes; Multiplicative spreads; 91G30; 91B24; 91B70 (search for similar items in EconPapers)
JEL-codes: E43 G12 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (35)

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Working Paper: A general HJM framework for multiple yield curve modeling (2015)
Working Paper: A general HJM framework for multiple yield curve modeling (2014)
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DOI: 10.1007/s00780-016-0291-5

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