ADAPTIVE AND MONOTONE SPLINE ESTIMATION OF THE CROSS-SECTIONAL TERM STRUCTURE

Alessandro Ramponi

International Journal of Theoretical and Applied Finance (IJTAF), 2003, vol. 06, issue 02, 195-212

Abstract: A number of numerical methods based on a piecewise polynomial approximation have been proposed for the estimation of the term structure of interest rates. Some drawbacks have been pointed out, such as a possible non monotonic estimated discount function and a highly fluctuating spot and forward rates. In order to overcome these kind of problems, we study the feasibility of an adaptive regression spline technique which use a monotone basis together with two alternative knot location procedures: a deterministicgreedyalgorithm and its randomized version in a simulated annealing framework. The features of the proposed method are tested on a set of data.

Keywords: Term structure; regression spline; model choice; simulated annealing (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (7)

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DOI: 10.1142/S0219024903001840

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