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An arbitrage-free interest rate model consistent with economic constraints for Long-Term Asset Liability Management

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BMI-HJM.pdf (1.165Mb)
Date
2012-01
Dewey
Economie financière
Sujet
HJM modeling; Assets and Liability Management; Calibration
JEL code
G12; G23
Journal issue
Bankers, Markets & Investors
Number
116
Publication date
01-2012
Article pages
4-19
Publisher
Revue-Banque
URI
https://basepub.dauphine.fr/handle/123456789/11497
Collections
  • DRM : Publications
Metadata
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Author
Vialas, Christine
Touzi, Nizar
Aïd, René
Type
Article accepté pour publication ou publié
Abstract (EN)
This paper proposes an Heath-Jarrow-Morton model of the yield curve that can fit the particular requirements of long-term asset and liability management (ALM). In particular, the proposed HJM model can reproduce expected long-term statistical properties of any two interest rates, while still satisfying the no-arbitrage constraints. We describe the methodology to calibrate the model in this particular constrainted setting, i.e. to find the model parameters as a function of the expected statistical properties. We precisely give the constraints on these expectations to ensure the existence of a solution.

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