Journal article
An optimization model for extracting forward interest rates from a dynamical systems under financial uncertainty
Dynamics of continuous, discrete & impulsive systems. Series B, Applications & algorithms, Vol.17(1), pp.1-21
2010
Abstract
n this paper the underlying law of motion of a financial instrument is a linear differential equation under uncertainty with perturbations for the financial instrument generating the time series. Instead of stochastic characteristics of uncertainty being known, only sets of possible values of perturbations are known, where a finite set of observed data points is taken as inputs into the system. Analogous to the classical Vasicek stochastic differential equation the dependent variable represents an integrand (the “forward rate”) in a continuous time discounting mechanism involving its integral in exponentiation. From this structure we develop a two-sided geometric programming approximation formulation for the problem of extracting the spot interest rate curve from Government Bills and couponpaying Notes & Bonds data. We present comparative numerical results for the 26 April 1996 market prices of French Treasury Bonds, where results from 5 well-known extraction methods are presented in the 2003 book of L. Martellini, P. Priaulet, and S. Priaulet.
Details
- Title: Subtitle
- An optimization model for extracting forward interest rates from a dynamical systems under financial uncertainty
- Creators
- K. O. Kortanek - University of PittsburghV. G. Medvedevy - OmniCADD, Inc., United States
- Resource Type
- Journal article
- Publication Details
- Dynamics of continuous, discrete & impulsive systems. Series B, Applications & algorithms, Vol.17(1), pp.1-21
- ISSN
- 1492-8760
- Language
- English
- Date published
- 2010
- Academic Unit
- Business Analytics
- Record Identifier
- 9984963104602771
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