On The Calibration of Short-Term Interest Rates Through a CIR Model
It is well known that the Cox-Ingersoll-Ross (CIR) stochastic model to study the term structure of interest rates, as introduced in 1985, is inadequate for modelling the current market environment with negative short interest rates. Moreover, the diffusion term in the rate dynamics goes to zero when short rates are small; both volatility and long-run mean do not change with time; they do not fit with the skewed (fat tails) distribution of the interest rates, etc. The aim of the present work is to suggest a new framework, which we call the CIR\# model, that well fits the term structure of short interest rates so that the market volatility structure is preserved as well as the analytical tractability of the original CIR model.
Code (0)
등록된 구현이 없습니다.
Similar Papers 제목 키워드 기반
Calibrating Local Volatility Models with Stochastic Drift and Diffusion
We propose Monte Carlo calibration algorithms for three models: local volatility with stochastic interest rates, stochastic local volatility with deterministic interest rates, and finally stochastic local volatility with…
Joint Calibration of Local Volatility Models with Stochastic Interest Rates using Semimartingale Optimal Transport
We develop and implement a non-parametric method for joint exact calibration of a local volatility model and a correlated stochastic short rate model using semimartingale optimal transport. The method relies on the duali…
Extensions of Dupire Formula: Stochastic Interest Rates and Stochastic Local Volatility
We derive generalizations of Dupire formula to the cases of general stochastic drift and/or stochastic local volatility. First, we handle a case in which the drift is given as difference of two stochastic short rates. Su…
SLSREC: Self-Supervised Contrastive Learning for Adaptive Fusion of Long- and Short-Term User Interests
User interests typically encompass both long-term preferences and short-term intentions, reflecting the dynamic nature of user behaviors across different timeframes. The uneven temporal distribution of user interactions …
Self-Supervised LearningContrastive LearningCalibration of Local Volatility Models with Stochastic Interest Rates using Optimal Transport
We develop a non-parametric, semimartingale optimal transport, calibration methodology for local volatility models with stochastic interest rate. The method finds a fully calibrated model which is the closest, in a way t…