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Modeling and simulating interest rates via time-dependent mean reversion

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Date Issued:
2014
Summary:
The purpose of this thesis is to compare the effectiveness of several interest rate models in fitting the true value of interest rates. Up until 1990, the universally accepted models were the equilibrium models, namely the Rendleman-Bartter model, the Vasicek model, and the Cox-Ingersoll-Ross (CIR) model. While these models were probably considered relatively accurate around the time of their discovery, they do not provide a good fit to the initial term structure of interest rates, making them substandard for use by traders in pricing interest rate options. The fourth model we consider is the Hull-White one-factor model, which does provide this fit. After calibrating, simulating, and comparing these four models, we find that the Hull-White model gives the best fit to our data sets.
Title: Modeling and simulating interest rates via time-dependent mean reversion.
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Name(s): Dweck, Andrew Jason, author
Long, Hongwei, Thesis advisor
Florida Atlantic University, Degree grantor
Charles E. Schmidt College of Science
Department of Mathematical Sciences
Type of Resource: text
Genre: Electronic Thesis Or Dissertation
Date Created: 2014
Date Issued: 2014
Publisher: Florida Atlantic University
Place of Publication: Boca Raton, Fla.
Physical Form: application/pdf
Extent: 71 p.
Language(s): English
Summary: The purpose of this thesis is to compare the effectiveness of several interest rate models in fitting the true value of interest rates. Up until 1990, the universally accepted models were the equilibrium models, namely the Rendleman-Bartter model, the Vasicek model, and the Cox-Ingersoll-Ross (CIR) model. While these models were probably considered relatively accurate around the time of their discovery, they do not provide a good fit to the initial term structure of interest rates, making them substandard for use by traders in pricing interest rate options. The fourth model we consider is the Hull-White one-factor model, which does provide this fit. After calibrating, simulating, and comparing these four models, we find that the Hull-White model gives the best fit to our data sets.
Identifier: FA00004103 (IID)
Degree granted: Thesis (M.S.)--Florida Atlantic University, 2014.
Collection: FAU Electronic Theses and Dissertations Collection
Note(s): Includes bibliography.
Subject(s): Game theory
Investment analysis
Options (Finance)
Recursive functions
Stochastic differential equations
Held by: Florida Atlantic University Libraries
Sublocation: Digital Library
Links: http://purl.flvc.org/fau/fd/FA00004103
Persistent Link to This Record: http://purl.flvc.org/fau/fd/FA00004103
Use and Reproduction: Copyright © is held by the author, with permission granted to Florida Atlantic University to digitize, archive and distribute this item for non-profit research and educational purposes. Any reuse of this item in excess of fair use or other copyright exemptions requires permission of the copyright holder.
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Host Institution: FAU
Is Part of Series: Florida Atlantic University Digital Library Collections.