Bayesian binomial zero-coupon bonds model

Rostislav Bogomolov () and Vladimir Khametov ()
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Rostislav Bogomolov: Central Economics and Mathematics Institute, Moscow, Russian Federation
Vladimir Khametov: National Research University Higher School of Economics, Moscow, Russian Federation

Applied Econometrics, 2016, vol. 42, 100-120

Abstract: The article is devoted to construction of stochastic one-factor evolutional model for zero-coupon bond in discrete time. As the base sequence it was used an asymmetric geometric random walk. It is shown that in case of observing not only the previous values of wandering, but his condition the last time it is Markov. In this case derived formulas for the transition probability in one step, as well as for the conditional mean and variance. Based on these facts, the article describes a stochastic model of zero-coupon bonds. For this model of bond were also find explicit formulas of its volatility, risk-neutral price, temporal structure of interest rates. Results of simulation display good match with real data.

Keywords: zero-coupon bond model; geometric random walk; interest rate; yield; model calibration (search for similar items in EconPapers)
JEL-codes: C10 C50 C60 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:ris:apltrx:0293

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