Comparative Analysis of Vasicek, CIR, and Dothan Models for Forecasting Interest Rates and ORI Prices

Ika Reskiana Adriani (), Hartina Husain, Wahyuni Ekasasmita and Kusnaeni
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Ika Reskiana Adriani: Institut Teknologi Bacharuddin Jusuf Habibie
Hartina Husain: Institut Teknologi Bacharuddin Jusuf Habibie
Wahyuni Ekasasmita: Institut Teknologi Bacharuddin Jusuf Habibie
Kusnaeni: Institut Teknologi Bacharuddin Jusuf Habibie

A chapter in Proceedings of the 9th International Conference on Accounting, Management, and Economics 2024 (ICAME 2024), 2025, pp 2331-2345 from Springer

Abstract: Abstract Investing involves allocating money with the expectation of future benefits. One common form of investment is bonds, which are financial ‘instruments issued to raise capital from investors, offering regular interest payments. In Indonesia, ORI (Indonesian Retail Bonds) is a type of bond that can be traded on the secondary market. As such, determining the price of ORI is crucial for planning purchase and trade transactions. Interest rates are a key factor affecting investments. The fluctuation of interest rates can be modeled as a stochastic process, which can be observed through various stochastic models. The purpose of this study is to use stochastic models such as Vasicek, CIR, and Dothan to forecast Indonesia’s reference interest rate and apply these predictions to ORI pricing. First, the parameters are estimated using ordinary least squares on historical interest rate data. Then, interest rates are calculated using a Monte Carlo simulation to obtain the average rate. Afterward, the Kolmogorov-Smirnov test is used to determine the best-fitting model. Finally, the estimated interest rates are applied to calculate the price of ORI.

Keywords: ORI; Vasicek; CIR; Dothan (search for similar items in EconPapers)
Date: 2025
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DOI: 10.2991/978-94-6463-758-8_186

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