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.
|Place of Publication||Tilburg|
|Number of pages||10|
|Publication status||Published - 2002|
|Name||CentER Discussion Paper|