Long-term returns in stochastic interest rate models: Convergence in law
نویسندگان
چکیده
Using an extension of the Cox-Ingersoll-Ross [1] stochastic model of the short interest rate r, we study the convergence in law of the longterm return in order to make some approximations. We use the theory of Bessel processes and observe the convergence in law of the sequence (√ −2β3 δn ∫ nt 0 (Xu + δu 2β )du ) t≥0 with the X a generalized Besselsquare process with drift with stochastic reversion level. By Aldous’ criterion, we are able to prove that this sequence converges in law to a Brownian motion.
منابع مشابه
Long-term Returns in Stochastic Interest Rate Models: Different Convergence Results
In this paper, we focus on different convergence results of the long-term return 1 t rudu 0 t ∫ , where the short interest rate r follows an extension of the Cox, Ingersoll and Ross1 model. Using the theory of Bessel processes, we proved the convergence almost everywhere of 1 t Xudu 0 t ∫ , where Xu ( )u≥0 denotes a generalisation of a Besselsquare process with drift. We also studied the conver...
متن کاملLong-term Returns in Stochastic Interest Rate Models: Applications
We extend the Cox-Ingersoll-Ross (1985) model of the short interest rate by assuming a stochastic reversion level, which better reflects the time dependence caused by the cyclical nature of the economy or by expectations concerning the future impact of monetary policies. In this framework, we have studied the convergence of the long-term return by using the theory of generalised Bessel-square p...
متن کاملSimulation of Long-term Returns with Stochastic Correlations
This paper focuses on a nonlinear stochastic model for financial simulation and forecasting based on assumptions of multivariate stochastic correlation, with an application to the European market. We present in particular the key elements of a structured hierarchical econometric model that can be used to forecast financial and commodity markets relying on statistical and simulation methods. The...
متن کاملThe Effects of Interest Rates Volatility on Stock Returns: Evidence from Bangladesh
The paper investigates the effects of interest rates on stock market performance by using monthly time series data for the economy of Bangladesh over the period of 1991 to 2012. A wide range of econometric techniques have been employed to analyze the relationship between the interest rate and stock market return. The study reveals a stable and significant long run relationship between the varia...
متن کاملLong-term and Short-term Effects of Financial Intermediation on Economic Growth
Financial intermediation in Iran's banking system is negatively affected at least in two ways. First, there are many similarities between financial intermediation and usurious activities in the common interpretation of interest-free banking law. This encourages the banks to participate in various commercial activities. Second, the price setting policies of the central bank makes investment more...
متن کامل