Projecting the Forward Rate Flow on a Finite Dimensional Manifold

Erhan Bayraktar, Li Chen () and H. Vincent Poor
Additional contact information
H. Vincent Poor: Princeton University

Finance from University Library of Munich, Germany

Abstract: Given an Heath-Jarrow-Morton (HJM) interest rate model and a parametrized family of finite dimensional forward rate curves, this paper provides us a way to project this infinite dimensional HJM forward rate curve to the finite dimensional manifold. This projection characterizes banks' behavior of calibrating forward curves by applying a certain family of curves (e.g., Nelson-Seigel family). Moreover, we derive the Stratonovich dynamics of the projected finite dimensional forward curve. This leads an implicit algorithm for parametric estimation of the original HJM model. We have demonstrated the feasibility of this method by applying generalized method of moments and methods of simulated moments.

Keywords: HJM Model; Finite-dimensional Manifolds; Nelson_Siegel Family (search for similar items in EconPapers)
JEL-codes: C39 (search for similar items in EconPapers)
Pages: 8 pages
Date: 2003-03-29
New Economics Papers: this item is included in nep-ecm, nep-fmk and nep-rmg
Note: Type of Document - Tex; prepared on IBM PC - PC-TEX/UNIX Sparc TeX; to print on HP/PostScript/Franciscan monk; pages: 8 ; figures: none. We never published this piece and now we would like to reduce our mailing and xerox cost by posting it.
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://econwpa.ub.uni-muenchen.de/econ-wp/fin/papers/0303/0303007.pdf (application/pdf)

Related works:
Journal Article: PROJECTING THE FORWARD RATE FLOW ONTO A FINITE DIMENSIONAL MANIFOLD (2006)
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:wpa:wuwpfi:0303007

Access Statistics for this paper

More papers in Finance from University Library of Munich, Germany
Bibliographic data for series maintained by EconWPA ( this e-mail address is bad, please contact ).