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2018 | OriginalPaper | Buchkapitel

A New Approach to CIR Short-Term Rates Modelling

verfasst von : Giuseppe Orlando, Rosa Maria Mininni, Michele Bufalo

Erschienen in: New Methods in Fixed Income Modeling

Verlag: Springer International Publishing

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Abstract

It is well known that the CIR model, as introduced in 1985, is inadequate for modelling the current market environment with negative short rates, r(t) . Moreover, in the CIR model, the stochastic part goes to zero with the rates, neither volatility nor long term mean change with time, or fit with skewed (fat tails) distribution of r(t) , etc. To overcome the limitations of the CIR, several different approaches have been proposed to date: multi-factor models such as the Hull and White or the Chen models to the CIR++ by Brigo and Mercurio. Here, we explain how our extension of the CIR framework may fit well to market short interest rates.

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Vorheriges Kapitel Term Structure, Market Expectations of the Short Rate, and Expected Inflation

Nächstes Kapitel The Heath-Jarrow-Morton Model with Regime Shifts and Jumps Priced

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Titel: A New Approach to CIR Short-Term Rates Modelling
verfasst von: Giuseppe Orlando
Rosa Maria Mininni
Michele Bufalo
Verlag: Springer International Publishing
Buch: New Methods in Fixed Income Modeling
Print ISBN: 978-3-319-95284-0

Electronic ISBN: 978-3-319-95285-7

Copyright-Jahr: 2018
DOI: https://doi.org/10.1007/978-3-319-95285-7_2