Convergence model of interest rates of CKLS type
Zuzana Zíková; Beáta Stehlíková
Kybernetika (2012)
- Volume: 48, Issue: 3, page 567-586
- ISSN: 0023-5954
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topZíková, Zuzana, and Stehlíková, Beáta. "Convergence model of interest rates of CKLS type." Kybernetika 48.3 (2012): 567-586. <http://eudml.org/doc/246153>.
@article{Zíková2012,
abstract = {This paper deals with convergence model of interest rates, which explains the evolution of interest rate in connection with the adoption of Euro currency. Its dynamics is described by two stochastic differential equations – the domestic and the European short rate. Bond prices are then solutions to partial differential equations. For the special case with constant volatilities closed form solutions for bond prices are known. Substituting its constant volatilities by instantaneous volatilities we obtain an approximation of the solution for a more general model. We compute the order of accuracy for this approximation, propose an algorithm for calibration of the model and we test it on the simulated and real market data.},
author = {Zíková, Zuzana, Stehlíková, Beáta},
journal = {Kybernetika},
keywords = {convergence model of interest rate; approximate analytic solution; order of accuracy; convergence model of interest rate; approximate analytic solution; order of accuracy; instantaneous volatilities; constant volatilities; stochastic differential equations; real market data; rates of CKLS; European short rate; partial differential equations; bond prices},
language = {eng},
number = {3},
pages = {567-586},
publisher = {Institute of Information Theory and Automation AS CR},
title = {Convergence model of interest rates of CKLS type},
url = {http://eudml.org/doc/246153},
volume = {48},
year = {2012},
}
TY - JOUR
AU - Zíková, Zuzana
AU - Stehlíková, Beáta
TI - Convergence model of interest rates of CKLS type
JO - Kybernetika
PY - 2012
PB - Institute of Information Theory and Automation AS CR
VL - 48
IS - 3
SP - 567
EP - 586
AB - This paper deals with convergence model of interest rates, which explains the evolution of interest rate in connection with the adoption of Euro currency. Its dynamics is described by two stochastic differential equations – the domestic and the European short rate. Bond prices are then solutions to partial differential equations. For the special case with constant volatilities closed form solutions for bond prices are known. Substituting its constant volatilities by instantaneous volatilities we obtain an approximation of the solution for a more general model. We compute the order of accuracy for this approximation, propose an algorithm for calibration of the model and we test it on the simulated and real market data.
LA - eng
KW - convergence model of interest rate; approximate analytic solution; order of accuracy; convergence model of interest rate; approximate analytic solution; order of accuracy; instantaneous volatilities; constant volatilities; stochastic differential equations; real market data; rates of CKLS; European short rate; partial differential equations; bond prices
UR - http://eudml.org/doc/246153
ER -
References
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