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Consistency of extended Nelson-Siegel curve families with the Ho-Lee and Hull and White short rate models

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  • Patricia Kisbye
  • Karem Meier

Abstract

Nelson and Siegel curves are widely used to fit the observed term structure of interest rates in a particular date. By the other hand, several interest rate models have been developed such their initial forward rate curve can be adjusted to any observed data, as the Ho-Lee and the Hull and White one factor models. In this work we study the evolution of the forward curve process for each of this models assuming that the initial curve is of Nelson-Siegel type. We conclude that the forward curve process produces curves belonging to a parametric family of curves that can be seen as extended Nelson and Siegel curves.

Suggested Citation

  • Patricia Kisbye & Karem Meier, 2017. "Consistency of extended Nelson-Siegel curve families with the Ho-Lee and Hull and White short rate models," Papers 1707.02496, arXiv.org.
    • Handle: RePEc:arx:papers:1707.02496
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    References listed on IDEAS

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    1. Tomas Björk & Bent Jesper Christensen, 1999. "Interest Rate Dynamics and Consistent Forward Rate Curves," Mathematical Finance, Wiley Blackwell, vol. 9(4), pages 323-348, October.
    2. Hull, John & White, Alan, 1990. "Pricing Interest-Rate-Derivative Securities," The Review of Financial Studies, Society for Financial Studies, vol. 3(4), pages 573-592.
    3. Alan Brace & Marek Musiela, 1994. "A Multifactor Gauss Markov Implementation Of Heath, Jarrow, And Morton," Mathematical Finance, Wiley Blackwell, vol. 4(3), pages 259-283, July.
    4. Ho, Thomas S Y & Lee, Sang-bin, 1986. "Term Structure Movements and Pricing Interest Rate Contingent Claims," Journal of Finance, American Finance Association, vol. 41(5), pages 1011-1029, December.
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