Interest Rates Calibration with a CIR Model

'Interest Rates Calibration with a CIR Model', with R.M. Mininni and M. Bufalo- Journal of Risk Finance, Emerald Publishing, 14 Sept. 2019, DOI: 10.1108/JRF-05-2019-0080

Posted: 20 Oct 2019

See all articles by Giuseppe Orlando

Giuseppe Orlando

University of Bari - Department of Economics and Mathematical Methods; Università degli Studi di Camerino - School of Science and Technologies

Rosa Maria Mininni

Dipartimento di Matematica - Università degli Studi di Bari Aldo Moro

Michele Bufalo

University of Rome I

Date Written: September 14, 2019

Abstract

The purpose of this paper is to model interest rates from observed financial market data through a new approach to the Cox–Ingersoll–Ross (CIR) model. This model is popular among financial institutions mainly because it is a rather simple (uni-factorial) and better model than the former Vasicek framework. However, there are a number of issues in describing interest rate dynamics within the CIR framework on which focus should be placed. Therefore, a new methodology has been proposed that allows forecasting future expected interest rates from observed financial market data by preserving the structure of the original CIR model, even with negative interest rates. The performance of the new approach, tested on monthly-recorded interest rates data, provides a good fit to current data for different term structures.

Keywords: Calibration, Forecasting and simulation, Interest rates, CIR model

JEL Classification: G12, E43, E47

Suggested Citation

Orlando, Giuseppe and Mininni, Rosa Maria and Bufalo, Michele, Interest Rates Calibration with a CIR Model (September 14, 2019). 'Interest Rates Calibration with a CIR Model', with R.M. Mininni and M. Bufalo- Journal of Risk Finance, Emerald Publishing, 14 Sept. 2019, DOI: 10.1108/JRF-05-2019-0080. Available at SSRN: https://ssrn.com/abstract=3467270

Giuseppe Orlando (Contact Author)

University of Bari - Department of Economics and Mathematical Methods ( email )

Via C. Rosalba 53
VI Floor, Room 12
Bari, 70124
Italy
+39 080 5049218 (Phone)

Università degli Studi di Camerino - School of Science and Technologies ( email )

Via M. delle Carceri 9
Camerino, 62032
Italy

Rosa Maria Mininni

Dipartimento di Matematica - Università degli Studi di Bari Aldo Moro ( email )

Campus universitario - Via Orabona, 4
Bari, Bari 70125
Italy

Michele Bufalo

University of Rome I ( email )

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