A simple and general approach to fitting the discount curve under no-arbitrage constraints

Matthias Fengler and Lin-Yee Hin ()

No 1423, Economics Working Paper Series from University of St. Gallen, School of Economics and Political Science

Abstract: We suggest a simple and general approach to fitting the discount curve under no-arbitrage constraints based on a penalized shape-constrained B-spline. Our approach accommodates B-splines of any order and fitting both under the L1 and the L2 loss functions. Simulations and an empirical analysis of US STRIPS data from 2001-2009 suggest that an active knot search and splines of order three and four are mandatory to obtain reasonable fits. The loss function appears to be less relevant.

Keywords: Employment; B-splines; Discount curve; No-arbitrage constraints; Monotone estimation; Yield curve (search for similar items in EconPapers)
JEL-codes: C44 C58 C61 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2014-08
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://ux-tauri.unisg.ch/RePEc/usg/econwp/EWP-1423.pdf (application/pdf)

Related works:
Journal Article: A simple and general approach to fitting the discount curve under no-arbitrage constraints (2015)
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:usg:econwp:2014:23

Access Statistics for this paper

More papers in Economics Working Paper Series from University of St. Gallen, School of Economics and Political Science Contact information at EDIRC.
Bibliographic data for series maintained by ().