Exact smooth term-structure estimation

DOI10.1137/16M1080276MaRDI QIDQ4553795zbMATH OpenOpenAlexWikidataFDO

Authors Damir Filipović, Sander Willems

Publication date 31 October 2018

Published in SIAM Journal on Financial Mathematics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1606.03899

zbMATH Keywords

bootstrapdiscount curveforward curvesplinesterm-structure estimation

Mathematics Subject Classification ID

Nonparametric estimation (62G05) Applications of statistics to actuarial sciences and financial mathematics (62P05) Derivative securities (option pricing, hedging, etc.) (91G20) Interest rates, asset pricing, etc. (stochastic models) (91G30)

Abstract: We present a non-parametric method to estimate the discount curve from market quotes based on the Moore-Penrose pseudoinverse. The discount curve reproduces the market quotes perfectly, has maximal smoothness, and is given in closed-form. The method is easy to implement and requires only basic linear algebra operations. We provide a full theoretical framework as well as several practical applications.

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Cites work

• A note on interest rate term structure estimation using tension splines
• Approximating term structure of interest rates using cubic \(L_1\) splines
• Constrained smoothing \(B\)-splines for the term structure of interest rates
• Discount curve construction with tension splines
• Exponential-polynomial families and the term structure of interest rates
• scientific article; zbMATH DE number 938655 (Why is no real title available?)
• Interest rate modelling.
• Interpolation Methods for Curve Construction
• Positive forward rates in the maximum smoothenss framework

Cited in

(11)

• How do invariant transformations affect the calibration and optimization of the Kalman filtering algorithm used in the estimation of continuous-time affine term structure models?
• Term structure analysis with big data: one-step estimation using bond prices
• A REVIEW OF TECHNIQUES FOR THE ESTIMATION OF THE TERM STRUCTURE
• Kriging of financial term-structures
• DISCOUNT CURVE ESTIMATION BY MONOTONIZING MCCULLOCH SPLINES
• A note on dual-curve construction: Mr. Crab's bootstrap
• ADAPTIVE AND MONOTONE SPLINE ESTIMATION OF THE CROSS-SECTIONAL TERM STRUCTURE
• A CONSTRAINED LEAST SQUARE METHOD FOR ESTIMATING A SMOOTH, NONNEGATIVE FORWARD RATE SEQUENCE
• Yield curve estimation by kernel smoothing methods
• Stripping the Swiss discount curve using kernel ridge regression
• Discount curve construction with tension splines

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