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A relaxed cutting plane algorithm for solving the Vasicek-type forward interest rate model

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  • Chen, Homing
  • Hu, Cheng-Feng

Abstract

This work considers the solution of the Vasicek-type forward interest rate model. A deterministic process is adopted to model the random behavior of interest rate variation as a deterministic perturbation. It shows that the solution of the Vasicek-type forward interest rate model can be obtained by solving a nonlinear semi-infinite programming problem. A relaxed cutting plane algorithm is then proposed for solving the resulting optimization problem. The features of the proposed method are tested using a set of real data and compared with some commonly used spline fitting methods.

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  • Chen, Homing & Hu, Cheng-Feng, 2010. "A relaxed cutting plane algorithm for solving the Vasicek-type forward interest rate model," European Journal of Operational Research, Elsevier, vol. 204(2), pages 343-354, July.
    • Handle: RePEc:eee:ejores:v:204:y:2010:i:2:p:343-354
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