EXTENSION OF VASICEK MODEL TO THE MODELLING OF INTEREST RATE

Authors

  • Adaobi Udoye
    Federal University Oye-Ekiti
  • Lukman Akinola
    Federal University Oye-Ekiti
  • Eka Ogbaji
    Federal University Wukari, Taraba State

Keywords:

Vasicek model, Interest Rate, Itô lemma

Abstract

Interest rate modelling is an interesting aspect of stochastic processes. It has been observed that interest rates fluctuates at random times, hence the need for its modelling as a stochastic process. In this paper, we apply the existing Vasicek model, Itô’s lemma and least-square regression method in the modelling and providing dynamics for a given interest rate.

Dimensions

Cont, R. and Tankov, P. (2004). Financial modelling with jump processes. Chapman & Hall/ CRC Financial Mathematics Series. Chapman & Hall/CRC, BocaRaton, FL.

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Filipovic, D. and Williams, S. (2019). A term structure model for dividends and interest rates, arXiv:1803.02249v2.

Myṡka, P. (2007). Application of interest rate models. WDS’07 Proceedings of Contributed Papers, Part I, pp: 198-204.

Park, K., Kim, M. and Kim, S. (2006). Bond Pricing with Jumps and Monte-Carlo Simulation. ICCS 2006, Part 1, LNCS 3911, pp: 30-37. Springer-Verlag Berlin Heidelberg.

Van den Berg, T. (2011). Calibrating the Ornstein-Uhlenbeck (Vasicek) Model.

https://www.statisticshowto.datasciencecentral.com.

Vasicek, O. A. (1977). An Equilibrium Characterization of the Term Structure. Journal of Financial Economics, 5: 177-188.

Yin, H-M., Liang, J. And Wu, Y. (2018). On a New Corporate Bond Pricing Model with Potential Credit Rating Change and Stochastic Interest Rate. Journal of Risk and Financial Management, 11(87): 1-12.

Published

02-07-2020

How to Cite

EXTENSION OF VASICEK MODEL TO THE MODELLING OF INTEREST RATE. (2020). FUDMA JOURNAL OF SCIENCES, 4(2), 151-155. https://doi.org/10.33003/fjs-2020-0402-94

Issue

Vol. 4 No. 2 (2020): FUDMA Journal of Sciences - Vol. 4 No. 2

Section

Research Articles
Copyright & Licensing

FUDMA Journal of Sciences

How to Cite

EXTENSION OF VASICEK MODEL TO THE MODELLING OF INTEREST RATE. (2020). FUDMA JOURNAL OF SCIENCES, 4(2), 151-155. https://doi.org/10.33003/fjs-2020-0402-94