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Modelling of stochastic fat-tailed auto-correlated processes: an application to short-term rates

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  • Olga Yashkir
  • Yuri Yashkir

Abstract

Many financial products sensitive to daily rate changes dictate the importance of adequate modelling of short-term rates. Their intrinsic properties are investigated based on historical market data. A new short-term rate model with the non-Gaussian random driver and auto-correlation factors is introduced. Special calibration procedures for the model are presented. Short-term rate stochastic dynamics are investigated in several numerical experiments.

Suggested Citation

  • Olga Yashkir & Yuri Yashkir, 2003. "Modelling of stochastic fat-tailed auto-correlated processes: an application to short-term rates," Quantitative Finance, Taylor & Francis Journals, vol. 3(3), pages 195-200.
    • Handle: RePEc:taf:quantf:v:3:y:2003:i:3:p:195-200
    DOI: 10.1088/1469-7688/3/3/305
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    References listed on IDEAS

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    1. Bronka Rzepkowski, 2002. "Heterogeneous expectations, currency options and the euro/dollar," Quantitative Finance, Taylor & Francis Journals, vol. 2(2), pages 147-157.
    2. Y. Samuelides & E. Nahum, 2001. "A tractable market model with jumps for pricing short-term interest rate derivatives," Quantitative Finance, Taylor & Francis Journals, vol. 1(2), pages 270-283.
    3. Melick, William R. & Thomas, Charles P., 1997. "Recovering an Asset's Implied PDF from Option Prices: An Application to Crude Oil during the Gulf Crisis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 32(1), pages 91-115, March.
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    Cited by:

    1. Olga Yashkir & Yuri Yashkir, 2014. "Overnight Index Rate: Model, calibration and simulation," Cogent Economics & Finance, Taylor & Francis Journals, vol. 2(1), pages 1-11, December.
    2. Yashkir, Yuriy & Yashkir, Olga, 2013. "Overnight Index Rate: Model, Calibration, and Simulation," MPRA Paper 47574, University Library of Munich, Germany.

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