Browsing by Author "Chronholm, Veronika"

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    Numerical Analysis of Yield Curves Implied by Two-Factor Interest Rate Models
    (2021-06-15) Chronholm, Veronika; University of Gothenburg/Department of Mathematical Science; Göteborgs universitet/Institutionen för matematiska vetenskaper
    Abstract We investigate the yield curves implied by coupon bonds in models where the market short rate is given by a two-factor stochastic model. Specifically, we investigate generalisations of the two-factor Vasicek, Cox-Ingersoll-Ross, and mixed models where the two Brownian motions that feature in each model are allowed to have nonzero constant correlation. We also study the two-factor Rendlemann-Bartter model with nonzero constant correlation. In all these models, we manage to recreate the four yield curve shapes commonly discussed in the literature; normal, steep, inverted, and flat. We also investigate how some of the interest rate model parameters affect the qualitative properties of the yield curves produced, and compare the yield curves obtained in the different models.