Numerical Analysis of Yield Curves Implied by Two-Factor Interest Rate Models
Sammanfattning: AbstractWe investigate the yield curves implied by coupon bonds in models where the market shortrate is given by a two-factor stochastic model. Specifically, we investigate generalisationsof the two-factor Vasicek, Cox-Ingersoll-Ross, and mixed models where the two Brownianmotions that feature in each model are allowed to have nonzero constant correlation. Wealso study the two-factor Rendlemann-Bartter model with nonzero constant correlation. Inall these models, we manage to recreate the four yield curve shapes commonly discussed inthe literature; normal, steep, inverted, and flat. We also investigate how some of the interestrate model parameters affect the qualitative properties of the yield curves produced, andcompare the yield curves obtained in the different models.
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