A Pricing Tree under the Vasicek (1976) Model with Stochastic V olatility
Date Issued
2014
Date
2014
Author(s)
Chuang, Tzu-Cheng
Abstract
In the past, most of the short rate models were pricing with constant volatility. However, constant volatility does not fit the real situation of our financial condition now because Janet L. Yellen implied that the interest rate will continuous go up soon in the future. When the interest rate goes up, the volatility of interest rate has significant fluctuation. Consequently, the models we used to simulate the interest rate with constant volatility are out-of-date. From the above, stochastic volatility should apply into interest rate model to get more precise interest rate. I, therefore, apply stochastic volatility into vasicek model with tree based method to elaborate my work in the thesis.
Subjects
Vasicek model
Heston model
moment matching
correlation
tree method
Type
thesis
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