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Interest Rate Term Structure Model of Fixed Income Product

Author: GuCheng
Tutor: YangYongYu
School: Beijing University of Chemical Technology
Course: Applied Mathematics
Keywords: Term Structure of Interest Rates Non-parametric Kernel estimator Two - factor model Maximum likelihood estimation
CLC: F820
Type: Master's thesis
Year: 2010
Downloads: 170
Quote: 0
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Abstract


Term structure (Interest Rate Term Structure) is a quantitative relationship between the same level of risk, interest rate and maturity. It is asset pricing, the design of financial products, hedging, arbitrage and investment on the basis of studies of the term structure of interest rates has always been finance is an important and very basic. Usually interest rate term structure model can be divided into static and dynamic models of two types of this thesis, the dynamic model to conduct research and analysis, parametric method and non-parametric methods were used for qualitative and quantitative analysis of the model. This paper first gives the non-parametric kernel estimation process and at the same time using the Gaussian kernel and parabolic nuclear quartic kernel and sixth check nonparametric term structure model empirical estimation and compare. The article also applied maximum likelihood function single factor and two-factor continuous-time term structure model parameter estimation, and floating rate bonds priced on the basis of the interest rate term structure fitted. The main conclusions are as follows: 1, the non-parametric kernel estimation method without prior assumptions drift and volatility functions specific form of interest rate models, but with the observed sample data to estimate them. Results show that the density of non-parametric model to estimate the drift function and the wave function are nonlinear, compared with the parameters of the model more accurate description of Interest Rate Term Structure; 4 kinds of kernel function to estimate the term structure of interest rates, derived from similar function; when the interest rate is small, four kinds of kernel function to estimate the drift function and the wave function is similar; estimates were similar when the interest rate is large, the Gaussian kernel and parabolic nuclear quartic kernel and the estimation results of the sixth nuclear similar to the latter two better reflects the mean-reversion effect of the interest rate. 2, can be seen from the results of parameter estimation using maximum likelihood function to estimate the interest rate model is feasible, and has been more satisfactory results. Two state variables to describe the nature of the instantaneous rate of a two-factor model, compared to the single-factor model to better reflect the internal differences of the instantaneous interest rate. It can be seen, due to the introduction of more variables, reflecting the more useful information; another actively traded bond transaction price to better reflect market demand and changes may not actively traded bond transaction price is unreasonable and does not reflect the actual market demand.

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CLC: > Economic > Fiscal, monetary > Currency > Monetary theory
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