A Relative Research of the Vasicek and the CIR Model

Abstract

Recent years have seen the development of theoretical models of the structure of interest rate models. The modeling and forecasting of interest rates is an especially prime and challenging. It is one of the most prime indicators for pricing potential claims, identifying capital costs and managing financial risk. As an effect, extensive research has been developed in this area. The purpose of this thesis of the term structure of interest rates is to analyze and present the relationships between them. The last fifty years, financial economists have turned their interest especially in this field of research which is particularly important for the conduct of monetary policy. In the first chapter of the survey we are investigating the structure of interest rates theoretically. In particular, general introductory elements of the interest rate structure are presented, basic definitions are provided, and the maturity theories accompanying these correlations are presented. At the same time, a detailed bibliographic review is made on the structure of interest rates and on their evolution and a brief review of the models to be followed. In the second chapter I start with a brief description of the interest rate models. Then I compare the models to each other, quote how their differential equations come out, I present the single factor interest rate models in detail for these models. In the third chapter of the research using the models of Vasicek and Cox- Ingersoll -Ross examined the empirical application whether specific rates covariate with the passage of time in the secondary market of US money. Also compare the two methods together.