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Decoding the Auto Encoder

38.00 mins
Dr. Jesper Andreasen
Thu 21 Sep 2023

We fit auto-encoder neural networks to swap yield curves in 10 different currencies and over a period of 15 years. We show that the different yield curve shapes can be captured well with only two to three factors. The same neural network can be used across all currencies. We further show that the resulting yield curves are close to dynamically arbitrage free and we identify the stochastic process of the short rate under the risk neutral measure that is consistent with the neural network.