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  4. Exact Smooth Term Structure Estimation
 
research article

Exact Smooth Term Structure Estimation

Willems, Sander
•
Filipovic, Damir
2018
SIAM Journal on Financial Mathematics

We present a non-parametric method to estimate the discount curve from market quotes based on the Moore-Penrose pseudoinverse. The discount curve reproduces the market quotes perfectly, has maximal smoothness, and is given in closed-form. The method is easy to implement and requires only basic linear algebra operations. We provide a full theoretical framework as well as several practical applications.

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