How to handle negative interest rates in a CIR framework

Abstract In this paper, we propose a new model to address the problem of negative interest rates that preserves analytical tractability original Cox–Ingersoll–Ross (CIR) without introducing shift market rates, because it is defined as difference two independent CIR processes. The strength our lies within fact very simple and can be calibrated zero yield curve using an formula. We run several numerical experiments at different dates, once with partially sub-zero rate fully rate. both cases, obtain good results in sense reproduces term structures well. then simulate Euler–Maruyama scheme examine mean, variance distribution model. latter agrees skewness fat tail seen addition, compare model’s coupon prices future points time. Finally, test consistency by evaluating swaptions tenors maturities.