Modeling of short term interest rate based on tempered fractional Langevin equation

Janusz Gajda ()

No HSC/12/03, HSC Research Reports from Hugo Steinhaus Center, Wroclaw University of Science and Technology

Abstract: We develop a new class of continuous-time models based on the solutions of tempered fractional Langevin equations for Ornstein–Uhlenbeck process driven by Levy noise. We present methods of simulation of sample paths of such processes. We show how to use such models in modeling short term interest rate. We develop tempered Vasicek interest rate model by finding explicit solutions of tempered fractional Langevin equations.

Keywords: Short term interest rate; Simulation; Langevin equation; Vasicek model (search for similar items in EconPapers)
JEL-codes: C15 E47 G12 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2012
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Forthcoming in Acta Phys. Polon. B 43(5), 961-975.

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