Open AccessModelling of Short Rate (β2) Parameter Diebold-Li Model Using Vasicek Stochastic Differential Equations
Author(s) -
Meylita Sari,
Sndah R. M. Putri,
Nuri Wahyuningsih
Publication year - 2019
Publication title -
journal of physics. conference series
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.21
H-Index - 85
eISSN - 1742-6596
pISSN - 1742-6588
DOI - 10.1088/1742-6596/1218/1/012059
Subject(s) - vasicek model , econometrics , short rate model , stochastic differential equation , interest rate , economics , yield curve , yield (engineering) , bond , cox–ingersoll–ross model , mathematics , bond valuation , representation (politics) , volatility (finance) , thermodynamics , physics , monetary economics , finance , politics , political science , law
Investment is the activity of investing or allocating money to earn some profit. There are several type of investments, one of which is bond. The interest rate of the bond is called a yield. A yield is considered as a representation of market expectations depends on interest rate movements according to market price at a certain time. The yield’s value will change following a stochastic process. Estimation of a short rate parameter ( β 2 ) of a Diebold-Li model is conducted by applying a least square method. Then, the yield modeling is developed based on the estimated short rate parameter Diebold-li model ( β 2 ) using Vasicek Stochastic Differential Equation. The final result is that modelling of short rate ( β 2 ) parameter Diebold-Li model using Vasicek Stochastic Differential Equation generates prediction values that have a high level of accuracy by MAPE prediction value of 8.65%.