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Embedding the Vasicek model into the Cox–Ingersoll–Ross model
Author(s) -
Sinkala W.,
Leach P. G. L.,
O'Hara J. G.
Publication year - 2010
Publication title -
mathematical methods in the applied sciences
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.719
H-Index - 65
eISSN - 1099-1476
pISSN - 0170-4214
DOI - 10.1002/mma.1342
Subject(s) - vasicek model , cox–ingersoll–ross model , embedding , mathematics , construct (python library) , econometrics , bond valuation , mathematical economics , interest rate , computer science , economics , artificial intelligence , finance , programming language
The Cox–Ingersoll–Ross (CIR) model and the Vasicek model are two well‐known single factor models of the interest spot rate. In this paper, we construct a mapping by means of which the price of a zero‐coupon bond in the CIR model may be obtained from a corresponding price in the Vasicek model. We use symmetry analysis to construct this mapping and verify it by transforming three arbitrary solutions of the pricing equation in the Vasicek model into solutions of the corresponding equation in the CIR model. Copyright © 2010 John Wiley & Sons, Ltd.