Bianchi, Carlo and Calzolari, Giorgio and Sterbenz, Frederic P. (1991): Simulation of interest rate options using ARCH. Published in: Universita' di Messina, Istituto di Economia, Statistica e Analisi del Territorio No. Quaderno No. 10, presented at the European Meeting of the Econometric Society, Cambridge, U.K. (1991): pp. 1-28.
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The autoregressive conditional heteroskedasticity (ARCH) estimation procedure provides a specification of the error terms as well as estimates of the coefficients. A simple interest rate equation is estimated using least squares and also using ARCH. Then the stochastic simulation methodology is extended to the ARCH process and Treasury Bond call options are evaluated. Interestingly when ARCH is compared to least squares it is found that the difference in coefficients estimates has a small effect, while the different simulation procedures have a large effect on the value of Treasury Bond call options.
|Item Type:||MPRA Paper|
|Original Title:||Simulation of interest rate options using ARCH|
|Keywords:||ARCH model; simulation; interest rate; Treasury bond call options|
|Subjects:||C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C63 - Computational Techniques ; Simulation Modeling
C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes
|Depositing User:||Giorgio Calzolari|
|Date Deposited:||14. Sep 2010 01:43|
|Last Modified:||15. Feb 2013 20:08|
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