Reference : A cyclical square-root model for the term structure of interest rates
Scientific journals : Article
Business & economic sciences : Finance
Business & economic sciences : Quantitative methods in economics & management
http://hdl.handle.net/2268/179626
A cyclical square-root model for the term structure of interest rates
English
Platania, Federico mailto [Université de Liège - ULiège > HEC-Ecole de gestion : UER > Analyse financière et finance d'entreprise >]
Moreno, Manuel mailto [> >]
2015
European Journal of Operational Research
Elsevier Science
Yes (verified by ORBi)
International
0377-2217
1872-6860
Amsterdam
The Netherlands
[en] Square-root process ; Interest rates ; Continuous-time model ; Harmonic waves ; Martingale
[en] This paper presents a cyclical square-root model for the term structure of interest rates assuming that
the spot rate converges to a certain time-dependent long-term level. This model incorporates the fact that the interest rate volatility depends on the interest rate level and specifies the mean reversion level and the interest rate volatility using harmonic oscillators. In this way, we incorporate a good deal of flexibility and provide a high analytical tractability. Under these assumptions, we compute closed-form expressions for the values of different fixed income and interest rate derivatives. Finally, we analyse the empirical performance of the cyclical model versus that proposed in Cox et al. (1985) and show that it outperforms this benchmark, providing a better fitting to market data.
http://hdl.handle.net/2268/179626

File(s) associated to this reference

Fulltext file(s):

FileCommentaryVersionSizeAccess
Restricted access
EJOR.pdfPublisher postprint997.5 kBRequest copy

Bookmark and Share SFX Query

All documents in ORBi are protected by a user license.