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Adaptive And Monotone Spline Estimation Of The Cross-Sectional Term Structure

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  • ALESSANDRO RAMPONI

    (Dipartimento di Matematica Pura ed Applicata, Universita' di L'Aquila, via Vetoio, 67010 L'Aquila, Italy)

Abstract

A number of numerical methods based on a piecewise polynomial approximation have been proposed for the estimation of the term structure of interest rates. Some drawbacks have been pointed out, such as a possible non monotonic estimated discount function and a highly fluctuating spot and forward rates. In order to overcome these kind of problems, we study the feasibility of an adaptive regression spline technique which use a monotone basis together with two alternative knot location procedures: a deterministicgreedyalgorithm and its randomized version in a simulated annealing framework. The features of the proposed method are tested on a set of data.

Suggested Citation

  • Alessandro Ramponi, 2003. "Adaptive And Monotone Spline Estimation Of The Cross-Sectional Term Structure," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 6(02), pages 195-212.
    • Handle: RePEc:wsi:ijtafx:v:06:y:2003:i:02:n:s0219024903001840
    DOI: 10.1142/S0219024903001840
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    References listed on IDEAS

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    1. ., 1998. "Mathematical Formulations of Ricardian Economics," Chapters, in: Heinz D. Kurz & Neri Salvadori (ed.), The Elgar Companion to Classical Economics, volume 0, chapter 107, Edward Elgar Publishing.
    2. ., 1998. "Mathematical Formulations of Marxian Economics," Chapters, in: Heinz D. Kurz & Neri Salvadori (ed.), The Elgar Companion to Classical Economics, volume 0, chapter 106, Edward Elgar Publishing.
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    Cited by:

    1. Chiu, Nan-Chieh & Fang, Shu-Cherng & Lavery, John E. & Lin, Jen-Yen & Wang, Yong, 2008. "Approximating term structure of interest rates using cubic L1 splines," European Journal of Operational Research, Elsevier, vol. 184(3), pages 990-1004, February.
    2. Cousin, Areski & Maatouk, Hassan & Rullière, Didier, 2016. "Kriging of financial term-structures," European Journal of Operational Research, Elsevier, vol. 255(2), pages 631-648.
    3. Emma Berenguer-Carceles & Ricardo Gimeno & Juan M. Nave, 2012. "Estimation of the Term Structure of Interest Rates: Methodology and Applications," Working Papers 12.06, Universidad Pablo de Olavide, Department of Financial Economics and Accounting (former Department of Business Administration).
    4. Fengler, Matthias R. & Hin, Lin-Yee, 2015. "A simple and general approach to fitting the discount curve under no-arbitrage constraints," Finance Research Letters, Elsevier, vol. 15(C), pages 78-84.

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