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A multiobjective approach using consistent rate curves to the calibration of a Gaussian Heath-Jarrow-Morton model

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Author Info
Antonio Falcó () (Universidad CEU Cardenal Herrera)
Juan Nave (Universidad de Castilla-La Mancha)
Lluís Navarro (Universidad CEU Cardenal Herrera)
Abstract

In this paper we propose an alternate calibration algorithm, by using a consistent family of yield curves, that fits a Gaussian Heath-Jarrow-Morton model jointly to the implied volatilities of caps and zero-coupon bond prices. The algorithm is capable for finding several Pareto optimal points as is expected for a general nonlinear multicriteria optimization problem. The calibration approach is evaluated in terms of in-sample data fitting as well as stability of parameter estimates. Furthermore, the efficiency is tested against a non-consistent traditional method by using simulated and US market data.

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File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2008-09.pdf
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File Function: Fisrt version / Primera version, 2008
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Publisher Info
Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2008-09.

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Length: 32 pages
Date of creation: Apr 2008
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Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2008-09

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Related research
Keywords: HJM models consistent forward rate curves multiobjective calibration

Find related papers by JEL classification:
E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates
C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Estimation

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This page was last updated on 2008-8-10.

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