Kriging of financial term-structures
From MaRDI portal
Abstract: Due to the lack of reliable market information, building financial term-structures may be associated with a significant degree of uncertainty. In this paper, we propose a new term-structure interpolation method that extends classical spline techniques by additionally allowing for quantification of uncertainty. The proposed method is based on a generalization of kriging models with linear equality constraints (market-fit conditions) and shape-preserving conditions such as monotonicity or positivity (no-arbitrage conditions). We define the most likely curve and show how to build confidence bands. The Gaussian process covariance hyper-parameters under the construction constraints are estimated using cross-validation techniques. Based on observed market quotes at different dates, we demonstrate the efficiency of the method by building curves together with confidence intervals for term-structures of OIS discount rates, of zero-coupon swaps rates and of CDS implied default probabilities. We also show how to construct interest-rate surfaces or default probability surfaces by considering time (quotation dates) as an additional dimension.
Recommendations
Cites work
- A Correspondence Between Bayesian Estimation on Stochastic Processes and Smoothing by Splines
- A New Rejection Sampling Method for Truncated Multivariate Gaussian Random Variables Restricted to Convex Sets
- A comparative evaluation of alternative models of the term structure of interest rates
- A cyclical square-root model for the term structure of interest rates
- A geostatistical approach for dynamic life tables: the effect of mortality on remaining lifetime and annuities
- A noisy principal component analysis for forward rate curves
- A tractable interest rate model with explicit monetary policy rates
- ADAPTIVE AND MONOTONE SPLINE ESTIMATION OF THE CROSS-SECTIONAL TERM STRUCTURE
- An analytically tractable interest rate model with humped volatility
- Application of data clustering and machine learning in variable annuity valuation
- Approximating term structure of interest rates using cubic \(L_1\) splines
- Constrained smoothing \(B\)-splines for the term structure of interest rates
- Cross validation and maximum likelihood estimations of hyper-parameters of Gaussian processes with model misspecification
- Design and analysis of computer experiments. With comments and a rejoinder by the authors
- Discount curve construction with tension splines
- Efficient global optimization of expensive black-box functions
- Estimating a fuzzy term structure of interest rates using fuzzy regression techniques.
- Gaussian process emulators for computer experiments with inequality constraints
- Generalization of the Kimeldorf-Wahba correspondence for constrained interpolation
- Interest rate term structure modelling
- Interpolation Methods for Curve Construction
- Kriging and splines with derivative information
- Kriging with inequality constraints
- MODEL UNCERTAINTY AND ITS IMPACT ON THE PRICING OF DERIVATIVE INSTRUMENTS
- Machine learning Vasicek model calibration with Gaussian processes
- Monotone Emulation of Computer Experiments
- On the range of options prices
- Robustness of the Black and Scholes Formula
- Spatial dependence in credit risk and its improvement in credit scoring
- THE RANGE OF TRADED OPTION PRICES
- The design and analysis of computer experiments.
- The origins of kriging
- Valuation of large variable annuity portfolios under nested simulation: a functional data approach
Cited in
(15)- Approximating Gaussian Process Emulators with Linear Inequality Constraints and Noisy Observations via MC and MCMC
- Maximum likelihood estimation for Gaussian processes under inequality constraints
- Stripping the Swiss discount curve using kernel ridge regression
- Finite-dimensional approximation of Gaussian processes with linear inequality constraints and noisy observations
- Generalization of the Kimeldorf-Wahba correspondence for constrained interpolation
- Sequential construction and dimension reduction of Gaussian processes under inequality constraints
- Is mortality or interest rate the most important risk in annuity models? A comparison of sensitivity analysis methods
- Short communication: Beyond surrogate modeling: learning the local volatility via shape constraints
- A framework of zero-inflated Bayesian negative binomial regression models for spatiotemporal data
- Estimating interest rate curves by support vector regression
- Simulation and evaluation of the distribution of interest rate risk
- Efficiency improvement of kriging surrogate model by subset simulation in implicit expression problems
- Finite-Dimensional Gaussian Approximation with Linear Inequality Constraints
- Gaussian process emulators for computer experiments with inequality constraints
- Gaussian processes for computer experiments
This page was built for publication: Kriging of financial term-structures
Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q323575)
