Stefano Herzel, Flavio Angelini
We study the practical implications of imposing "consistency" on the choice
of the initial curve on the
calibration of an HJM model.
Consistency, simply stated, is that the initial curve should come from the class of
forward rate curves that will be generated by the model at futures dates.
We perform analysis both on simulated and market data using the extended Vasicek model.
Our results show that the initial curve
has a significative impact on the estimates of the parameter of the model.
We identify a family, consistent with the model,
which, on market data,
shows more stable estimates, as well as better fitting and forecasting