bond.vasicek: Simulates the values and yields of zero-coupon bonds when the...

In SMFI5: R functions and data from Chapter 5 of 'Statistical Methods for Financial Engineering'

Description

Simulates the values and yields of zero-coupon bonds when the (annualized ) spot rate (in percent) is modeled by a Ornstein-Uhlenbeck process satisfying dr <- alpha(beta-r)dt + sigma dW, with market price of risk q(r) <- q1+q2 r. The maturities are 1,3,6 and 12 months.

Usage

bond.vasicek(alpha, beta, sigma, q1, q2, r0, n, maturities, days = 360)

Arguments

alpha	Mean-reversion parameter.
beta	Long term mean.
sigma	Volatility parameter.
q1	Market prime of risk parameter.
q2	Market prime of risk parameter.
r0	Initial rate value.
n	Number of periods.
maturities	Maturities in years (row vector).
days	Days in a year convention (360 default).

Value

P	Bond values.
R	Annual rate for the bond.
tau	Maturities in years.

Note

Translated from Matlab by David-Shaun Guay (HEC Montreal grant).

Author(s)

Bruno Remillard

References

Chapter 5 of 'Statistical Methods for Financial Engineering, B. Remillard, CRC Press, (2013).

Examples

out = bond.vasicek(0.5,2.55,0.365,0.3,0,3.55,1080,c(1/12, 3/12, 6/12, 1),365);

Example output

Loading required package: ggplot2
Loading required package: reshape
Loading required package: corpcor

SMFI5 documentation built on May 2, 2019, 10:25 a.m.