Filipovic, Damir2010-04-252010-04-252010-04-252000https://infoscience.epfl.ch/handle/20.500.14299/49696Exponential-polynomial families like the Nelson-Siegel or Svensson family are widely used to estimate the current forward rate curve. We investigate whether these methods go well with inter-temporal modelling. We characterize the consistent Ito processes which have the property to provide an arbitrage free interest rate model when representing the parameters of some bounded exponential-polynomial type function. This includes in particular diffusion processes. We show that there is a strong limitation on their choice. Bounded exponential-polynomial families should rather not be used for modelling the term structure of interest rates.consistent Ito processdiffusion processexponential-polynomial familyforward rate curveinterest rate modelinverse problemtext::journal::journal article::research article