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Modelling of stochastic fat-tailed auto-correlated processes: an application to short-term rates

Author

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  • Yashkir, Olga
  • Yashkir, Yuriy

Abstract

Many financial products sensitive to daily rate changes dictate the importance of adequate modelling of short-term rates. Their intrinsic properties are investigated based on historical market data. A new short-term rate model with the non-Gaussian random driver and auto-correlation factors is introduced. Special calibration procedures for the model are presented.Short-term rate stochastic dynamics are investigated in several numerical experiments.

Suggested Citation

  • Yashkir, Olga & Yashkir, Yuriy, 2003. "Modelling of stochastic fat-tailed auto-correlated processes: an application to short-term rates," MPRA Paper 46391, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:46391
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    File URL: https://mpra.ub.uni-muenchen.de/46391/1/MPRA_paper_46391.pdf
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    References listed on IDEAS

    as
    1. Melick, William R. & Thomas, Charles P., 1997. "Recovering an Asset's Implied PDF from Option Prices: An Application to Crude Oil during the Gulf Crisis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 32(1), pages 91-115, March.
    2. Lee, Yungsook, 1999. "The federal funds market and the overnight Eurodollar market," Research Notes 99-2, Deutsche Bank Research.
    3. Y. Samuelides & E. Nahum, 2001. "A tractable market model with jumps for pricing short-term interest rate derivatives," Quantitative Finance, Taylor & Francis Journals, vol. 1(2), pages 270-283.
    4. Philippe Artzner & Freddy Delbaen & Jean‐Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228, July.
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    Cited by:

    1. Olga Yashkir & Yuri Yashkir, 2014. "Overnight Index Rate: Model, calibration and simulation," Cogent Economics & Finance, Taylor & Francis Journals, vol. 2(1), pages 1-11, December.
    2. Yashkir, Yuriy & Yashkir, Olga, 2013. "Overnight Index Rate: Model, Calibration, and Simulation," MPRA Paper 47574, University Library of Munich, Germany.

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    More about this item

    Keywords

    overnight rate; short-term rate; rate model; auto-correllation model; overnight interest rate swap; OIR; OIS;
    All these keywords.

    JEL classification:

    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
    • C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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