On term structure modelling beyond multicurves

Session 3: Term Structure Modelling II

Abstract: One of the recent tendencies in term structure modelling is to consider a single driver for the spreads between overnight and term rates or between different tenors. One such driver is roll-over risk that can be related to multiplicative spreads. We aim at a dynamic model for the roll-over risk-adjusted borrowing account that takes into account the risk attitude of investors and does not require classical absence of arbitrage. To this effect we consider the benchmark approach and base ourselves on a relation between the term structure PDE and risk sensitive stochastic control.
(Based on joint work with C. Fontana and S. Pavarana)