Equilibrium Short-Rate Models vs No-Arbitrage Models: Literature Review and Computational Examples
In this paper equilibrium short-rate models are compared against no-arbitrage short-rate models. This article is composed of the introduction to this literature and a review, followed by numerical examples of one-factor short-rate models; the Cox-Ingersoll-Ross (CIR) model and the Vasicek model. No-...
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| Format: | Article |
| Language: | English |
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Wydawnictwo Uniwersytetu Ekonomicznego we Wrocławiu
2021-01-01
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| Series: | Ekonometria |
| Online Access: | https://journals.ue.wroc.pl/eada/article/view/949 |
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| _version_ | 1850185629763108864 |
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| author | Dushko Josheski Mico Apostolov |
| author_facet | Dushko Josheski Mico Apostolov |
| author_sort | Dushko Josheski |
| collection | DOAJ |
| description | In this paper equilibrium short-rate models are compared against no-arbitrage short-rate models. This article is composed of the introduction to this literature and a review, followed by numerical examples of one-factor short-rate models; the Cox-Ingersoll-Ross (CIR) model and the Vasicek model. No-arbitrage models were presented through the Hull-White (HW) model, the Binomial lattice model for bond pricing and interest rate modelling, the Black-Karasinski (BK) model, and the Heath-Jarrow-Morton (HJM) model. The results prove that no single interest rate model exists that can be used for all purposes. These models were compared in terms of volatility, mean reversion process and convergence. The end results confirm the dependence of volatility on the level rate as a determinant of the predictive success of these models. (original abstract) |
| format | Article |
| id | doaj-art-5ebbd1949ed24bff8419167e18f78e21 |
| institution | OA Journals |
| issn | 2449-9994 |
| language | English |
| publishDate | 2021-01-01 |
| publisher | Wydawnictwo Uniwersytetu Ekonomicznego we Wrocławiu |
| record_format | Article |
| series | Ekonometria |
| spelling | doaj-art-5ebbd1949ed24bff8419167e18f78e212025-08-20T02:16:39ZengWydawnictwo Uniwersytetu Ekonomicznego we WrocławiuEkonometria2449-99942021-01-01nr 3950Equilibrium Short-Rate Models vs No-Arbitrage Models: Literature Review and Computational ExamplesDushko Josheski0Mico Apostolov1Business Administration, University Goce Delchev, Stip, MacedoniaBusiness Administration, University Goce Delchev, Stip, MacedoniaIn this paper equilibrium short-rate models are compared against no-arbitrage short-rate models. This article is composed of the introduction to this literature and a review, followed by numerical examples of one-factor short-rate models; the Cox-Ingersoll-Ross (CIR) model and the Vasicek model. No-arbitrage models were presented through the Hull-White (HW) model, the Binomial lattice model for bond pricing and interest rate modelling, the Black-Karasinski (BK) model, and the Heath-Jarrow-Morton (HJM) model. The results prove that no single interest rate model exists that can be used for all purposes. These models were compared in terms of volatility, mean reversion process and convergence. The end results confirm the dependence of volatility on the level rate as a determinant of the predictive success of these models. (original abstract)https://journals.ue.wroc.pl/eada/article/view/949 |
| spellingShingle | Dushko Josheski Mico Apostolov Equilibrium Short-Rate Models vs No-Arbitrage Models: Literature Review and Computational Examples Ekonometria |
| title | Equilibrium Short-Rate Models vs No-Arbitrage Models: Literature Review and Computational Examples |
| title_full | Equilibrium Short-Rate Models vs No-Arbitrage Models: Literature Review and Computational Examples |
| title_fullStr | Equilibrium Short-Rate Models vs No-Arbitrage Models: Literature Review and Computational Examples |
| title_full_unstemmed | Equilibrium Short-Rate Models vs No-Arbitrage Models: Literature Review and Computational Examples |
| title_short | Equilibrium Short-Rate Models vs No-Arbitrage Models: Literature Review and Computational Examples |
| title_sort | equilibrium short rate models vs no arbitrage models literature review and computational examples |
| url | https://journals.ue.wroc.pl/eada/article/view/949 |
| work_keys_str_mv | AT dushkojosheski equilibriumshortratemodelsvsnoarbitragemodelsliteraturereviewandcomputationalexamples AT micoapostolov equilibriumshortratemodelsvsnoarbitragemodelsliteraturereviewandcomputationalexamples |