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Equilibrium interest rate models for the Indian Government security market

Author

Listed:
  • Sunrita Chaudhuri
  • Alok Pandey

Abstract

After the financial sector reforms of the 1990s, interest rates in the debt segment are increasingly being determined by the market. Active participants in the debt market, therefore, need to use appropriate models to ensure fair pricing of interest rate related products and their derivatives. The two most widely used equilibrium models are Vasicek and Cox Ingersoll and Ross model. This study estimates the parameters of the Vasicek and Cox and Ingersoll and Ross model using 91Days T-Bills data from the Indian market. Thereafter the term structure of interest rates is simulated for future periods. Finally, the model parameters are used to price interest rate related instruments and derivative instruments.

Suggested Citation

  • Sunrita Chaudhuri & Alok Pandey, 2024. "Equilibrium interest rate models for the Indian Government security market," International Journal of Financial Markets and Derivatives, Inderscience Enterprises Ltd, vol. 10(1), pages 70-86.
    • Handle: RePEc:ids:ijfmkd:v:10:y:2024:i:1:p:70-86
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