A Consistent Stochastic Model of the Term Structure of Interest Rates for Multiple Tenors
A Consistent Stochastic Model of the Term Structure of Interest Rates for Multiple Tenors
Explicitly taking into account the risk incurred when borrowing at a shorter tenor versus lending at a longer tenor ("roll-over risk"), we construct a stochastic model framework for the term structure of interest rates in which a frequency basis (i.e. a spread applied to one leg of a swap to …