Short-Term Interest Rate Model: Calibration of the Vasicek Process to Ghanaâ€™s Treasury Rate
Gideon Mensah Engmann and
Journal of Finance and Investment Analysis, 2016, vol. 5, issue 1, 4
This paper calibrates model parameters of the Vasicek process to Ghanaâ€™s Treasury bill rate. The calibration was done by both the methods of least squares and maximum likelihood. The key objective is to propose a simple but an appropriate short-term interest rate model that could be used to value any security that depends on Ghanaâ€™s Treasury bill rate. The 91 day Treasury bill rate dataset from January 1988 to June 2015 were used. A major finding of the study was that, the method of maximum likelihood resulted in a much lower estimate for the volatility as compared to the method of least squares. Vasicek model is one member of the family of one-factor short-term interest rate models. Future research needs to compare the Vasicek to other members of the family.
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Persistent link: https://EconPapers.repec.org/RePEc:spt:fininv:v:5:y:2016:i:1:f:5_1_4
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