A general HJM framework for multiple yield curve modelling

DOI10.1007/S00780-016-0291-5zbMATH Open1376.91166arXiv1406.4301OpenAlexW3121437287MaRDI QIDQ287657FDOQ287657

Authors: Christa Cuchiero, Claudio Fontana, Alessandro Gnoatto 

Publication date: 23 May 2016

Published in: Finance and Stochastics (Search for Journal in Brave)

Abstract: We propose a general framework for modeling multiple yield curves which have emerged after the last financial crisis. In a general semimartingale setting, we provide an HJM approach to model the term structure of multiplicative spreads between FRA rates and simply compounded OIS risk-free forward rates. We derive an HJM drift and consistency condition ensuring absence of arbitrage and, in addition, we show how to construct models such that multiplicative spreads are greater than one and ordered with respect to the tenor's length. When the driving semimartingale is specified as an affine process, we obtain a flexible Markovian structure. Finally, we show that the proposed framework allows to unify and extend several recent approaches to multiple yield curve modeling.

Full work available at URL: https://arxiv.org/abs/1406.4301

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zbMATH Keywords

semimartingalestochastic partial differential equationaffine processesforward rate agreementHJM modelLibor ratemultiple yield curvesmultiplicative spreads

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Continuous-time Markov processes on general state spaces (60J25) Applications of stochastic analysis (to PDEs, etc.) (60H30) Microeconomic theory (price theory and economic markets) (91B24) Interest rates, asset pricing, etc. (stochastic models) (91G30)

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