Measurement of interest rates using a convex optimization model

作者：Blomvall Jorgen

来源：European Journal of Operational Research, 2017, 256(1): 308-316.

DOI：10.1016/j.ejor.2016.05.053

• Finance
• OR in banking
• Forward rate
• Term structure
• Non-linear optimization

Measurement of a single interest rate curve is an important and well-studied inverse problem. To select plausible interest rate curves from the infinite set of possible interest rate curves, forward rates should be used in the regularization. By discretizing the interest rate curve it is shown that the inverse problem can be reformulated as a convex optimization model that can be efficiently solved using existing solvers. The convex optimization model can include bills, bonds, certificates of deposits, forward rate agreements and interest rate swaps using both equality constraints and inequality constraints that stem from bid/ask prices. The importance of an appropriate regularization and allowing for deviations from market prices to obtain stable forward rate curves is illustrated using market data.

• 出版日期2017-1-1