Papers › Exact Smooth Term-Structure Estimation
Exact Smooth Term-Structure Estimation
Damir Filipović, Sander Willems
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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