Certainty in an uncertain world

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Sound advice in a changing world

Yield Curve Modelling for Low Rate Environments

For our complex structural derivatives pricing and a client's global asset return model we explored models based on Black's call option correction to standard 3-factor Gaussian exponential affine yield curve models.

This nonlinearity requires the substitution by the unscented Kalman filter of the standard Kalman filter. A paper is available here .