English, Article edition: PROJECTING THE FORWARD RATE FLOW ONTO A FINITE DIMENSIONAL MANIFOLD ERHAN BAYRAKTAR; LI CHEN; H. VINCENT POOR

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Bookmark: http://trove.nla.gov.au/version/82896
Physical Description
  • article
Language
  • English

Edition details

Title
  • PROJECTING THE FORWARD RATE FLOW ONTO A FINITE DIMENSIONAL MANIFOLD
Author
  • ERHAN BAYRAKTAR
  • LI CHEN
  • H. VINCENT POOR
Physical Description
  • article
Notes
  • Given a HeathâJarrowâMorton (HJM) interest rate model $\mathcal{M}$ and a parametrized family of finite dimensional forward rate curves $\mathcal{G}$, this paper provides a technique for projecting the infinite dimensional forward rate curve rt given by $\mathcal{M}$ onto the finite dimensional manifold $\mathcal{G}$. The Stratonovich dynamics of the projected finite dimensional forward curve are derived and it is shown that, under the regularity conditions, the given Stratonovich differential equation has a unique strong solution. Moreover, this projection leads to an efficient algorithm for implicit parametric estimation of the infinite dimensional HJM model. The feasibility of this method is demonstrated by applying the generalized method of moments.
  • Interest rate models, consistency problems, calibration of HJM models, infinite dimensional stochastic differential equations
  • RePEc:wsi:ijtafx:v:09:y:2006:i:05:p:777-785
Language
  • English
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