2012/03/09 by Josef Teichmann, Teichmann, Josef, Mario V. Wüthrich +1
Economics, Econometrics and Finance · #91G70 #Credit Risk and Financial Regulations #FOS: Economics and business #Financial Risk and Volatility Modeling #Pricing of Securities (q-fin.PR) #Statistical Finance (q-fin.ST) #Stochastic processes and financial applications
paper · pdf · doi:10.48550/arxiv.1203.2017
openalex publication_date 2012/03/09 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
We present an arbitrage-free non-parametric yield curve prediction model which takes the full (discretized) yield curve as state variable. We believe that absence of arbitrage is an important model feature in case of highly correlated data, as it is the case for interest rates. Furthermore, the model structure allows to separate clearly the tasks of estimating the volatility structure and of calibrating market prices of risk. The empirical part includes tests on modeling assumptions, back testing and a comparison with the Vasiček short rate model.