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Risks 2016, 4(3), 18;

Consistent Re-Calibration of the Discrete-Time Multifactor Vasiček Model

Institute of Mathematics, Albert Ludwigs University of Freiburg, 79104 Freiburg, Germany
Department of Mathematics, ETH Zurich, 8092 Zurich, Switzerland
Department of Mathematics, RiskLab, ETH Zurich, 8092 Zurich, Switzerland
Swiss Finance Institute SFI, Walchestrasse 9, 8006 Zurich, Switzerland
We thank Hansjörg Furrer for supporting this project.
Author to whom correspondence should be addressed.
Academic Editor: Mogens Steffensen
Received: 21 December 2015 / Revised: 12 May 2016 / Accepted: 8 June 2016 / Published: 23 June 2016
Full-Text   |   PDF [3188 KB, uploaded 23 June 2016]   |  


The discrete-time multifactor Vasiček model is a tractable Gaussian spot rate model. Typically, two- or three-factor versions allow one to capture the dependence structure between yields with different times to maturity in an appropriate way. In practice, re-calibration of the model to the prevailing market conditions leads to model parameters that change over time. Therefore, the model parameters should be understood as being time-dependent or even stochastic. Following the consistent re-calibration (CRC) approach, we construct models as concatenations of yield curve increments of Hull–White extended multifactor Vasiček models with different parameters. The CRC approach provides attractive tractable models that preserve the no-arbitrage premise. As a numerical example, we fit Swiss interest rates using CRC multifactor Vasiček models. View Full-Text
Keywords: interest rate model; re-calibration; HJM model; Vasiček model; Hull–White extension interest rate model; re-calibration; HJM model; Vasiček model; Hull–White extension

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Harms, P.; Stefanovits, D.; Teichmann, J.; Wüthrich, M.V. Consistent Re-Calibration of the Discrete-Time Multifactor Vasiček Model. Risks 2016, 4, 18.

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