Next Article in Journal
An Optimal Turkish Private Pension Plan with a Guarantee Feature
Previous Article in Journal
Ruin Probabilities with Dependence on the Number of Claims within a Fixed Time Window
Open AccessFeature PaperArticle

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

1
Institute of Mathematics, Albert Ludwigs University of Freiburg, 79104 Freiburg, Germany
2
Department of Mathematics, ETH Zurich, 8092 Zurich, Switzerland
3
Department of Mathematics, RiskLab, ETH Zurich, 8092 Zurich, Switzerland
4
Swiss Finance Institute SFI, Walchestrasse 9, 8006 Zurich, Switzerland
*
Author to whom correspondence should be addressed.
We thank Hansjörg Furrer for supporting this project.
Academic Editor: Mogens Steffensen
Risks 2016, 4(3), 18; https://doi.org/10.3390/risks4030018
Received: 21 December 2015 / Revised: 12 May 2016 / Accepted: 8 June 2016 / Published: 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
Show Figures

Figure 1

MDPI and ACS Style

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

Show more citation formats Show less citations formats
Note that from the first issue of 2016, MDPI journals use article numbers instead of page numbers. See further details here.

Article Access Map by Country/Region

1
Search more from Scilit
 
Search
Back to TopTop