We reconstruct arbitrage free dynamics for the term structure of interest rates driven by infinitely many factors, each one representing a basic shape for the instantaneous forward rate curve in a given market. The consistency between a finite dimensional space of polynomials where the curve is day-to-day recovered and the proposed evolution equation is investigated. The main result is the developement of a historical-implicit hybrid calibration procedure for our infinite-dimensional shape factor model. In this context we also derive a pricing formula for caplets.

Theory and calibration of HJM with shape factors

GUIOTTO, PAOLO;
2002

Abstract

We reconstruct arbitrage free dynamics for the term structure of interest rates driven by infinitely many factors, each one representing a basic shape for the instantaneous forward rate curve in a given market. The consistency between a finite dimensional space of polynomials where the curve is day-to-day recovered and the proposed evolution equation is investigated. The main result is the developement of a historical-implicit hybrid calibration procedure for our infinite-dimensional shape factor model. In this context we also derive a pricing formula for caplets.
2002
Mathematical Finance
9783540677819
File in questo prodotto:
Non ci sono file associati a questo prodotto.
Pubblicazioni consigliate

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11577/1349855
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus ND
  • ???jsp.display-item.citation.isi??? 1
social impact