2009
DOI: 10.1080/14697680802624963
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A multi-quality model of interest rates

Abstract: We consider a consistent pricing model of government bonds, interest-rate swaps and basis swaps in one currency within the no-arbitrage framework. To this end, we propose a three yield-curve model, one for discounting cash flows, one for calculating LIBOR deposit rates and one for calculating coupon rates of government bonds. The derivation of the yield curves from observed data is presented, and the option prices on a swap or a government bond are studied. A one-factor quadratic Gaussian model is proposed as … Show more

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Cited by 92 publications
(64 citation statements)
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“…In this paper we consider a possible multi-curve extension of the short rate model class that, with respect to the other model classes, has in particular the advantage of leading more easily to a Markovian structure. Other multi-curve extensions of short rate models have appeared in the literature such as Kijima et al [22], Kenyon [20], Filipović and Trolle [14], Morino and Runggaldier [27]. The present paper considers an exponentially quadratic model, whereas the models in the mentioned papers concern mainly the exponentially affine framework, except for [22] in which the exponentially quadratic models are mentioned.…”
Section: Introductionmentioning
confidence: 88%
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“…In this paper we consider a possible multi-curve extension of the short rate model class that, with respect to the other model classes, has in particular the advantage of leading more easily to a Markovian structure. Other multi-curve extensions of short rate models have appeared in the literature such as Kijima et al [22], Kenyon [20], Filipović and Trolle [14], Morino and Runggaldier [27]. The present paper considers an exponentially quadratic model, whereas the models in the mentioned papers concern mainly the exponentially affine framework, except for [22] in which the exponentially quadratic models are mentioned.…”
Section: Introductionmentioning
confidence: 88%
“…Other multi-curve extensions of short rate models have appeared in the literature such as Kijima et al [22], Kenyon [20], Filipović and Trolle [14], Morino and Runggaldier [27]. The present paper considers an exponentially quadratic model, whereas the models in the mentioned papers concern mainly the exponentially affine framework, except for [22] in which the exponentially quadratic models are mentioned. More details on the difference between the exponentially affine and exponentially quadratic short rate models will be provided below.…”
Section: Introductionmentioning
confidence: 88%
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“…Previous contributions focus on the valuation of cross currency (basis) swaps (see, Boenkost and Schmidt 2005;Kijima et al 2009;Fujii et al 2010;Henrard 2010). Henrard (2007b), is the first to apply this methodology to the single currency case, whereas Bianchetti (2010) is the first to deal with the post-crisis situation.…”
Section: Introductionmentioning
confidence: 99%
“…On the other hand, many contributions focus on extending pricing models under the multi-curve framework. Kijima et al (2009), apply the methodology to study two short rate models, the Vasicek model and the quadratic Gaussian model, and use them for the valuation of bond options and swaptions. Mercurio (2009Mercurio ( , 2010 and Grbac et al (2015) extend the libor market model (LMM) to be compatible with the multi-curve practice and price caplets and swaptions, while more recently, Pallavicini and Tarenghi (2010), Crépey et al (2012), Moreni and Pallavicini (2014) and Cuchiero et al (2016) extend the classical HeathJarrow-Morton (HJM) framework to incorporate multiple curves in order to price interest rate products such as forward starting interest rate swaps (IRS), plain vanilla European swaptions and CMS spread options.…”
Section: Introductionmentioning
confidence: 99%