Resource title

Discount curve estimation by monotonizing McCulloch Splines

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Resource description

In this paper a new and very simple method for monotone estimation of discount curves is proposed. The main idea of this approach is a simple modification of the commonly used (unconstrained) Mc-Culloch Spline. We construct an integrated density estimate from the predicted values of the discount curve. It can be shown that this statistic is an estimate of the inverse of the discount function and the final estimate can easily be obtained by a numerical inversion. The resulting procedure is extremely simple and we have implemented it in Excel and VBA, respectively. The performance is illustrated by three examples, in which the curve was previously estimated with an unconstrained McCulloch Spline.

Resource author

Holger Dette, Daniel Ziggel

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/22670

Resource license

Adapt according to the presented license agreement and reference the original author.