Calibration of the Gaussian Musiela model using the Karhunen-Loeve expansion
نویسنده
چکیده
In this paper we calibrate the stationary Gaussian Musiela model to time series of market data using the Karhunen-Loeve expansion in order to get an ortonormal basis (classically known as EOF, empirical orthonormal functions) in a separable Hilbert space. The basis found is optimal for representing the covariance of the invariant measure of the forward rates’ process.
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