Abstract:We develop a parsimonious arbitrage-free yield net model for consistent bond pricing across maturities and issuers. Containing a core curve and multiple periphery curves, the yield net is spanned by three layers of factors: base factors spanning all curves, common spread factors spanning all periphery yield spreads, and speci…c factors each spanning yield spreads of a periphery issuer. Under the arbitrage-free assumption, we prove a parsimonious solution to the risk-neutral process that guarantees strong ident… Show more
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