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Title: Convergence model of interest rates of CKLS type (English)
Author: Zíková, Zuzana
Author: Stehlíková, Beáta
Language: English
Journal: Kybernetika
ISSN: 0023-5954
Volume: 48
Issue: 3
Year: 2012
Pages: 567-586
Summary lang: English
Category: math
Summary: 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. (English)
Keyword: convergence model of interest rate
Keyword: approximate analytic solution
Keyword: order of accuracy
MSC: 62A10
MSC: 93E12
idMR: MR2975807
Date available: 2012-08-31T16:04:55Z
Last updated: 2013-09-24
Stable URL:
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