TY - UNPB
T1 - Observational Equivalence of Discrete String Models and Market Models
AU - Kerkhof, F.L.J.
AU - Pelsser, A.
N1 - Pagination: 10
PY - 2002
Y1 - 2002
N2 - In this paper we show that, contrary to the claim made in Longsta, Santa-Clara, and Schwartz (2001a) and Longsta, Santa-Clara, and Schwartz (2001b), discrete string models are not more parsimonious than market models.In fact, they are found to be observationally equivalent.We derive that, for the estimation of both a K-factor discrete string model and a K-factor Libor market model for N forward rates the number of parameters that needs to be estimated equals NK .K (K .1) /2 and not K (K +1)/2 and NK, respectively.
AB - In this paper we show that, contrary to the claim made in Longsta, Santa-Clara, and Schwartz (2001a) and Longsta, Santa-Clara, and Schwartz (2001b), discrete string models are not more parsimonious than market models.In fact, they are found to be observationally equivalent.We derive that, for the estimation of both a K-factor discrete string model and a K-factor Libor market model for N forward rates the number of parameters that needs to be estimated equals NK .K (K .1) /2 and not K (K +1)/2 and NK, respectively.
KW - string model
KW - market model
M3 - Discussion paper
VL - 2002-28
T3 - CentER Discussion Paper
BT - Observational Equivalence of Discrete String Models and Market Models
PB - Finance
CY - Tilburg
ER -