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arXiv · 1606.03899

Exact Smooth Term-Structure Estimation

Damir Filipović·Sander Willems
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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.

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Damir Filipović, Sander Willems. 2018-08-09. Exact Smooth Term-Structure Estimation. https://arxiv.org/abs/1606.03899

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