Stochastic volatility, a new approach for vasicek model with stochastic volatility

Zeytun, Serkan
In the original Vasicek model interest rates are calculated assuming that volatility remains constant over the period of analysis. In this study, we constructed a stochastic volatility model for interest rates. In our model we assumed not only that interest rate process but also the volatility process for interest rates follows the mean-reverting Vasicek model. We derived the density function for the stochastic element of the interest rate process and reduced this density function to a series form. The parameters of our model were estimated by using the method of moments. Finally, we tested the performance of our model using the data of interest rates in Turkey.


On forward interest rate models : via random fields and Markov jump processes
Altay, Sühan; Körezlioğlu, Hayri; Department of Financial Mathematics (2007)
The essence of the interest rate modeling by using Heath-Jarrow-Morton framework is to find the drift condition of the instantaneous forward rate dynamics so that the entire term structure is arbitrage free. In this study, instantaneous forward interest rates are modeled using random fields and Markov Jump processes and the drift conditions of the forward rate dynamics are given. Moreover, the methodology presented in this study is extended to certain financial settings and instruments such as multi-country...
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Uğurlu-Yıldırım, Ecenur; Şendeniz Yüncü, İlkay (Elsevier BV, 2020-01-01)
In this paper, we hypothesize that institutional investor variable is a proxy for some systematic risk factors, which should be incorporated into the asset-pricing model. Mimicking portfolio for institutional ownership, called IMI (Institutional minus Individual), is constructed. Including IMI to the Carhart's 4-factor model captures the common variations in returns better than all other models that are tested. Consistent with the literature, the new 5-factor model improves mispricing mostly in portfolios i...
Energy mutual funds and oil prices
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Purpose The purpose of this paper is to examine the price level and volatility impacts of oil prices on energy mutual funds (EMFs). The authors also examine specific fund characteristics which might influence those interactions.
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In this thesis, Dupire local volatility model is studied in details as a means of modeling the volatility structure of a financial asset. In this respect, several forms of local volatility equations have been derived: Dupire's local volatility, local volatility as conditional expectation, and local volatility as a function of implied volatility. We have proven the main results of local volatility model discussed in the literature in details. In addition, we have also proven the local volatility model under ...
Comparative study of risk measures
Ekşi, Zehra; Körezlioğlu, Hayri; Department of Financial Mathematics (2005)
There is a little doubt that, for a decade, risk measurement has become one of the most important topics in finance. Indeed, it is natural to observe such a development, since in the last ten years, huge amounts of financial transactions ended with severe losses due to severe convulsions in financial markets. Value at risk, as the most widely used risk measure, fails to quantify the risk of a position accurately in many situations. For this reason a number of consistent risk measures have been introduced in...
Citation Formats
S. Zeytun, “Stochastic volatility, a new approach for vasicek model with stochastic volatility,” M.S. - Master of Science, Middle East Technical University, 2005.