{"title":"Interest rate model with humped volatility under the real-world measure","authors":"T. Yasuoka","doi":"10.18282/FF.V7I1.459","DOIUrl":null,"url":null,"abstract":"The purpose of this paper is to develop real-world modeling for interest rate volatility with a humped term structure. We consider humped volatility that can be parametrically characterized such that the Hull–White model is a special case. First, we analytically show estimation of the market price of risk with humped volatility. Then, using U.S. treasury yield data, we examine volatility fitting and estimate the market price of risk using the Heath–Jarrow–Morton model, Hull–White model, and humped volatility model. Comparison of the numerical results shows that the real-world humped volatility model is adequately developed.","PeriodicalId":242006,"journal":{"name":"Financial Forum","volume":"151 1","pages":"0"},"PeriodicalIF":0.0000,"publicationDate":"2018-12-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Financial Forum","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.18282/FF.V7I1.459","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"","JCRName":"","Score":null,"Total":0}
引用次数: 0
Abstract
The purpose of this paper is to develop real-world modeling for interest rate volatility with a humped term structure. We consider humped volatility that can be parametrically characterized such that the Hull–White model is a special case. First, we analytically show estimation of the market price of risk with humped volatility. Then, using U.S. treasury yield data, we examine volatility fitting and estimate the market price of risk using the Heath–Jarrow–Morton model, Hull–White model, and humped volatility model. Comparison of the numerical results shows that the real-world humped volatility model is adequately developed.