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Modelling Interest Rate Dynamics

In: Derivative Security Pricing

Author

Listed:
  • Carl Chiarella

    (University of Technology Sydney)

  • Xue-Zhong He

    (University of Technology Sydney)

  • Christina Sklibosios Nikitopoulos

    (University of Technology Sydney)

Abstract

In this chapter, we establish the fundamental relationships between interest rates, bond prices and forward rates. We further discuss the modelling of interest rates and analyse typical models for the spot interest rate and the forward rates. As we desire interest rates to be non-negative, we seek stochastic processes with this feature such as the Feller process. Thus we present the motivation of the Feller process and its relevance to the interest rate modelling. We also summarise the main results of Fubini’s theorem, that are very useful for modelling forward rates.

Suggested Citation

  • Carl Chiarella & Xue-Zhong He & Christina Sklibosios Nikitopoulos, 2015. "Modelling Interest Rate Dynamics," Dynamic Modeling and Econometrics in Economics and Finance, in: Derivative Security Pricing, edition 127, chapter 0, pages 439-467, Springer.
    • Handle: RePEc:spr:dymchp:978-3-662-45906-5_22
    DOI: 10.1007/978-3-662-45906-5_22
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    Cited by:

    1. Emel Siklar & Ilyas Siklar, 2021. "Time Series Dynamics of Short Term Interest Rates in Turkey," Business and Economic Research, Macrothink Institute, vol. 11(1), pages 92-108, March.

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