The geometry of multi-curve interest rate models

Claudio Fontana, Giacomo Lanaro and Agatha Murgoci

Quantitative Finance, 2025, vol. 25, issue 2, 323-342

Abstract: We study the problems of consistency and the existence of finite-dimensional realizations for multi-curve interest rate models of Heath–Jarrow–Morton type, generalizing the geometric approach developed by T. Björk and co-authors for the classical single-curve setting. We characterize when a multi-curve interest rate model is consistent with a given parameterized family of forward curves and spreads and when a model can be realized by a finite-dimensional state process. We illustrate the general theory in a number of model classes and examples, providing explicit constructions of finite-dimensional realizations. Based on these theoretical results, we perform the calibration of a three-curve Hull–White model to market data and analyse the stability of the estimated parameters.

Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:taf:quantf:v:25:y:2025:i:2:p:323-342

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DOI: 10.1080/14697688.2024.2409276

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