Multi-curve Cheyette-style models with lower bounds on tenor basis spreads

Michael Konikov and Andrew McClelland
29 Dec 2020

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This article presents a general multi-curve Cheyette-style model that allows precise control over tenor basis spreads. The specification was proposed by Grbac and Runggaldier, but a solution for the no-arbitrage drift function has remained elusive. Michael Konikov and Andrew McClelland recover the drift function via an ansatz and proceed to fully develop the model, providing an example with a level-dependent volatility function to secure lower bounds on spreads

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