Estimation of a Linear Factor Model of the Term StructureOf
نویسنده
چکیده
In this article, we present a multivariate factor model of the term structure of interest rates. The simplicity of the model's linear structure yields nice formulas for arbitrage-free pricing. Moreover, estimation and calibration is relatively simple to do. Using price data on stripped bonds, we calibrate our model and demonstrate that the assumption of the existence of a multivariate Weiner process is not unreasonable. The model is calibrated on both daily and weekly trading data.
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