A multiobjective approach using consistent rate curves to the calibration of a Gaussian Heath-Jarrow-Morton model
AbstractIn 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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Bibliographic InfoPaper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2008-09.
Length: 32 pages
Date of creation: Apr 2008
Date of revision:
Publication status: Published by Ivie
HJM models; consistent forward rate curves; multiobjective calibration;
Find related papers by JEL classification:
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-07-20 (All new papers)
- NEP-ECM-2008-07-20 (Econometrics)
- NEP-MAC-2008-07-20 (Macroeconomics)
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