A general HJM framework for multiple yield curve modeling

Christa Cuchiero, Claudio Fontana and Alessandro Gnoatto
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Claudio Fontana: LaMME - Laboratoire de Mathématiques et Modélisation d'Evry - INRA - Institut National de la Recherche Agronomique - UEVE - Université d'Évry-Val-d'Essonne - CNRS - Centre National de la Recherche Scientifique

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Abstract: We propose a general framework for modeling 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 (normalized) 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 specified as an affine process, we obtain a flexible Markovian structure which allows for tractable valuation formulas for most interest rate derivatives. Finally, we show that the proposed framework allows to unify and extend several recent approaches to multiple yield curve modeling.

Keywords: Multiple yield curves; HJM model; semimartingale; forward rate agreement; Libor rate; interest rate; affine processes (search for similar items in EconPapers)
Date: 2014-06-17
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: A general HJM framework for multiple yield curve modelling (2016)
Working Paper: A general HJM framework for multiple yield curve modeling (2015)
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