Parsimonious HJM Modelling for Multiple Yield-Curve Dynamics

Nicola Moreni and Andrea Pallavicini

Papers from arXiv.org

Abstract: For a long time interest-rate models were built on a single yield curve used both for discounting and forwarding. However, the crisis that has affected financial markets in the last years led market players to revise this assumption and accommodate basis-swap spreads, whose remarkable widening can no longer be neglected. In recent literature we find many proposals of multi-curve interest-rate models, whose calibration would typically require market quotes for all yield curves. At present this is not possible since most of the quotes are missing or extremely illiquid. Thanks to a suitable extension of the HJM framework, we propose a parsimonious model based on observed rates that deduces yield-curve dynamics from a single family of Markov processes. Furthermore, we detail a specification of the model reporting numerical examples of calibration to quoted market data.

Date: 2010-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://arxiv.org/pdf/1011.0828 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1011.0828

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().