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

Listed author(s):
  • Antonio Falcó


    (Universidad CEU Cardenal Herrera)

  • Juan Nave

    (Universidad de Castilla-La Mancha)

  • Lluís Navarro

    (Universidad CEU Cardenal Herrera)

Registered author(s):

    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 Function: Fisrt version / Primera version, 2008
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    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
    Publication status: Published by Ivie
    Handle: RePEc:ivi:wpasad:2008-09
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