Estimation of the discount curve by constrained kriging.

Summary The construction of term structures is at the heart of financial evaluation and risk management see e.g. [1], [2], [3], [4] and [5]. A term structure is a curve that describes the evolution of an economic or financial quantity as a function of the maturity or time horizon. Typical examples are the term structure of risk-free interest rates, the term structure of bonds, the term structure of default probabilities and the term structure of implied volatilities of financial asset returns. In practice, market quotes of the underlying financial products are used and provide partial information on the term structures considered. Moreover, this information is more or less reliable depending on the liquidity of the maturity of the markets in question. The goal is to obtain a continuous maturity curve from this information.