A relaxed cutting plane algorithm for solving the Vasicek-type forward interest rate model

Homing Chen and Cheng-Feng Hu

European Journal of Operational Research, 2010, vol. 204, issue 2, 343-354

Abstract: This work considers the solution of the Vasicek-type forward interest rate model. A deterministic process is adopted to model the random behavior of interest rate variation as a deterministic perturbation. It shows that the solution of the Vasicek-type forward interest rate model can be obtained by solving a nonlinear semi-infinite programming problem. A relaxed cutting plane algorithm is then proposed for solving the resulting optimization problem. The features of the proposed method are tested using a set of real data and compared with some commonly used spline fitting methods.

Keywords: Semi-infinite; programming; Forward; interest; rate (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:204:y:2010:i:2:p:343-354

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