A tractable interest rate model with explicit monetary policy rates

Détails

ID Serval
serval:BIB_9D758623F20F
Type
Article: article d'un périodique ou d'un magazine.
Collection
Publications
Institution
Titre
A tractable interest rate model with explicit monetary policy rates
Périodique
European Journal of Operational Research
Auteur(s)
Renne J.-P.
ISSN
0377-2217
Statut éditorial
Publié
Date de publication
2016
Peer-reviewed
Oui
Volume
251
Numéro
3
Pages
873-887
Langue
anglais
Résumé
This paper proposes a novel interest rate model that presents simple analytical pricing formulas for interest rate-based derivatives, including swaps, futures, swaptions, caps and floors. Exploring the regime-switching feature of Markov chains, the proposed model focuses on discrete changes in the central bank policy rates the main driver of short-term rate fluctuations. An empirical analysis shows that the proposed model generally outperforms other standard short-term rate models in fitting cross-sections of options prices. Moreover, the explicit nature of policy rates, to some extent, enables the model to infer risk-neutral probabilities of the central-bank rate decisions.
Mots-clé
Yield curve, Option pricing, Regime switching, Market expectations
Web of science
Création de la notice
12/05/2016 10:55
Dernière modification de la notice
20/08/2019 15:03
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