Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/167895
Authors: 
Harms, Philipp
Stefanovits, David
Teichmann, Josef
Wüthrich, Mario V.
Year of Publication: 
2016
Citation: 
[Journal:] Risks [ISSN:] 2227-9091 [Volume:] 4 [Year:] 2016 [Issue:] 3 [Pages:] 1-31
Abstract: 
The discrete-time multifactor Vasicek model is a tractable Gaussian spot rate model. Typically, two- or three-factor versions allow one to capture the dependence structure between yields with different times to maturity in an appropriate way. In practice, re-calibration of the model to the prevailing market conditions leads to model parameters that change over time. Therefore, the model parameters should be understood as being time-dependent or even stochastic. Following the consistent re-calibration (CRC) approach, we construct models as concatenations of yield curve increments of Hull-White extended multifactor Vasicek models with different parameters. The CRC approach provides attractive tractable models that preserve the no-arbitrage premise. As a numerical example, we fit Swiss interest rates using CRC multifactor Vasicek models.
Subjects: 
interest rate model
re-calibration
HJM model
Vasicek model
Hull–White extension
Persistent Identifier of the first edition: 
Creative Commons License: 
http://creativecommons.org/licenses/by/4.0/
Document Type: 
Article
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