A new S.D.E. and instantaneous mean reversion rate formula (presented via a numerical empirical model comparison)

Yedidya Rabinovitz ()
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Yedidya Rabinovitz: 16 Bar-Ilan St. Rehovot 7622123, Israel

International Journal of Financial Engineering (IJFE), 2017, vol. 04, issue 02n03, 1-22

Abstract: A new short-rate model and a new explicit instantaneous mean reversion formula are introduced. The introduction is presented via a comparison of various short-rate one factor models, which are calibrated and analyzed numerically via a Monte Carlo simulation. Two variance reduction techniques, Stratified Sampling and the Sobol Algorithm, are compared. An empirical comparison is constructed using criteria of goodness-of-fit, in five exchange rates. The data is ex-ante ultimately measuring the predictability of the stochastic models and variance reduction.

Keywords: Stochastic differential equations; mean reversion; variance reduction; exchange rates; empirical comparison (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1142/S2424786317500293

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