A general HJM framework for multiple yield curve modelling
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affine processesforward rate agreementHJM modelLibor ratemultiple yield curvesmultiplicative spreadssemimartingalestochastic partial differential equation
Applications of stochastic analysis (to PDEs, etc.) (60H30) Continuous-time Markov processes on general state spaces (60J25) Microeconomic theory (price theory and economic markets) (91B24) Derivative securities (option pricing, hedging, etc.) (91G20) Interest rates, asset pricing, etc. (stochastic models) (91G30)
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.
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