A Flexible Spot Multiple-Curve Model

24 Pages Posted: 13 Apr 2014

See all articles by Martino Grasselli

Martino Grasselli

University of Padova - Department of Mathematics; Léonard de Vinci Pôle Universitaire, Research Center

Giulio Miglietta

University of Padova - Department of Mathematics

Date Written: April 12, 2014

Abstract

We propose a model for the instantaneous risk-free spot rate and for the spot LIBOR, driven by a time-homogeneous Markovian process. We introduce deterministic time-shifts in order to match any initial term-structure. By doing so, the model automatically becomes an exogenous term-structure model, in the spirit of Brigo and Mercurio (2001) who proposed this approach in the single curve case. A calibration exercise based on real data illustrates the flexibility of our approach for some typical speci fications used in the literature and in the bank industry.

Keywords: Short rate models, Multiple-curve interest rate model, LIBOR-OIS spread, Analytical tractability, Calibration to market data, Affine specifi cation

JEL Classification: G13

Suggested Citation

Grasselli, Martino and Miglietta, Giulio, A Flexible Spot Multiple-Curve Model (April 12, 2014). Available at SSRN: https://ssrn.com/abstract=2424242 or http://dx.doi.org/10.2139/ssrn.2424242

Martino Grasselli

University of Padova - Department of Mathematics ( email )

Via Trieste 63
Padova, Padova
Italy

Léonard de Vinci Pôle Universitaire, Research Center ( email )

Paris La Défense
France

Giulio Miglietta (Contact Author)

University of Padova - Department of Mathematics ( email )

Italy

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