Short-term interest rate models and generation of interest rate scenarios

Y.K. Tse

Mathematics and Computers in Simulation (MATCOM), 1997, vol. 43, issue 3, 475-480

Abstract: This paper investigates the stochastic behaviour of the short-term interest rates. The lognormal model, the stable Paretian model and the continuous time mean reversion model are considered. The parameters of the models are estimated using 17 years of weekly data. Our results show that the lognormal and the stable Paretian models are likely to give rise to unreasonably large interest rate values even for horizon of five years. In comparison, the mean reversion model appears to provide more realistic results than the other two models.

Date: 1997
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Persistent link: https://EconPapers.repec.org/RePEc:eee:matcom:v:43:y:1997:i:3:p:475-480

DOI: 10.1016/S0378-4754(97)00034-7

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