Exact Smooth Term-Structure Estimation
Mathematical Finance
2018-08-10 v4
Abstract
We present a non-parametric method to estimate the discount curve from market quotes based on the Moore-Penrose pseudoinverse. The discount curve reproduces the market quotes perfectly, has maximal smoothness, and is given in closed-form. The method is easy to implement and requires only basic linear algebra operations. We provide a full theoretical framework as well as several practical applications.
Cite
@article{arxiv.1606.03899,
title = {Exact Smooth Term-Structure Estimation},
author = {Damir Filipović and Sander Willems},
journal= {arXiv preprint arXiv:1606.03899},
year = {2018}
}
Comments
Forthcoming in SIAM Journal on Financial Mathematics