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Convex Structure of the Constrained Least Square Problem for Estimating the Forward Rate Sequence

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  • HIROSHI KONNO

Abstract

We will show that the constrained least square problem proposed in Konno and Takase [5] for estimating the forward rate sequence by using the market prices of default-free non-callable coupon bonds is in fact a convex minimization problem under more general conditions than those assumed in the subsequent paper by the same authors [6]. Consequently, the constrained least square approach can generate a smooth and accurate forward rate sequence very fast by standard convex minimization algorithms. Copyright Kluwer Academic Publishers 1997

Suggested Citation

  • Hiroshi Konno, 1997. "Convex Structure of the Constrained Least Square Problem for Estimating the Forward Rate Sequence," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 4(2), pages 179-185, May.
    • Handle: RePEc:kap:apfinm:v:4:y:1997:i:2:p:179-185
    DOI: 10.1023/A:1009677915798
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    1. Carleton, Willard T & Cooper, Ian A, 1976. "Estimation and Uses of the Term Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 31(4), pages 1067-1083, September.
    2. Vasicek, Oldrich A & Fong, H Gifford, 1982. "Term Structure Modeling Using Exponential Splines," Journal of Finance, American Finance Association, vol. 37(2), pages 339-348, May.
    3. Delbaen, F. & Lorimier, Sabine, 1992. "Estimation of the yield curve and the forward rate curve starting from a finite number of observations," Insurance: Mathematics and Economics, Elsevier, vol. 11(4), pages 259-269, December.
    4. McCulloch, J Huston, 1971. "Measuring the Term Structure of Interest Rates," The Journal of Business, University of Chicago Press, vol. 44(1), pages 19-31, January.
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