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Sep 2

Vasicek model in binomial tree

Posted by abiao at 16:28 | Code » C++ | Comments(1) | Reads(17554)
At previous post I shared a site using R language for Vasicek estimation, as we know, Vasicek model is a term structure model describing the stochastic process of interest rates. It is a type of "one-factor model" with negative interest rate possible, despite this shortcoming, it is still applied for fixed income research and application due to its mean-reversion characteristics.

Here is another Vasicek application implemented with binomial tree in C++, the tree construction procedure is outlined in Tuckman famous book Fixed Income Securities. By providing input parameters like the initial short rate, speed of mean reversion, long-run average rate and volatility, interest rate following Vasicek evolution is constructed.

For detail check this page http://math.nyu.edu/~atm262/spring06/ircm/vasicek/.

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