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A new S.D.E. and instantaneous mean reversion rate formula (presented via a numerical empirical model comparison)

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  • Yedidya Rabinovitz

    (16 Bar-Ilan St. Rehovot 7622123, Israel)

Abstract

A new short-rate model and a new explicit instantaneous mean reversion formula are introduced. The introduction is presented via a comparison of various short-rate one factor models, which are calibrated and analyzed numerically via a Monte Carlo simulation. Two variance reduction techniques, Stratified Sampling and the Sobol Algorithm, are compared. An empirical comparison is constructed using criteria of goodness-of-fit, in five exchange rates. The data is ex-ante ultimately measuring the predictability of the stochastic models and variance reduction.

Suggested Citation

  • Yedidya Rabinovitz, 2017. "A new S.D.E. and instantaneous mean reversion rate formula (presented via a numerical empirical model comparison)," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 4(02n03), pages 1-22, June.
    • Handle: RePEc:wsi:ijfexx:v:04:y:2017:i:02n03:n:s2424786317500293
    DOI: 10.1142/S2424786317500293
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