Calibration of Interest Rates

WDS'12 Proceedings of Contributed Papers: Part I – Mathematics and Computer Sciences

6 Pages Posted: 29 Jul 2013

See all articles by Jakub Cerny

Jakub Cerny

Charles University in Prague - Faculty of Mathematics and Physics

Date Written: November 2, 2012

Abstract

In this contribution we study calibration methods of interest rate models. First, we assume that model parameters are constant and can be estimated by the maximum likelihood estimation or yield curve fitting methods. Next, we suppose that model parameters are random variables with their prior distributions. We present Markov Chain Monte Carlo algorithm to generate from posterior distribution using the Bayes theorem. Different methods of calibration based on real data are then applied on well-known Vasicek model with constant volatility.

Keywords: Interest rate models calibration, Vasicek model, Bayesian methods, MCMC algorithm

JEL Classification: C11, C15, G12

Suggested Citation

Cerny, Jakub, Calibration of Interest Rates (November 2, 2012). WDS'12 Proceedings of Contributed Papers: Part I – Mathematics and Computer Sciences. Available at SSRN: https://ssrn.com/abstract=2302509

Jakub Cerny (Contact Author)

Charles University in Prague - Faculty of Mathematics and Physics ( email )

Sokolovska 83
Prague, 186 75
Czech Republic

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