Based On The Vasicek Model The Term Structure Of Interest Rates And Applied Research

The term structure of interest rate means at the same level of risk, the relationship between the yield to maturity and the mature time limit about different bonds. Setting up models for the instantaneous interest rate, pricing for the derivative product of interest rate at the base of those models and evading the risk from interest rate arethe central issues for the term structure of interest rate. With the development of our bond market, innovation of finance deep-going unceasingly and market oriented reform on interest rate moving forward progressively, the importance of term structure is manifesting increasingly.This paper studies the models of term structure basing on Vasicek Model. It chooses 7D Interbank Offered Rate to substitute for short-term interest rate, the sample is from May, 24, 2004 to April, 20, 2007, that is 710 daily interest rates altogether. Doing empirical and applied research for Vasicek Model and extended models is in order to reveal the theory and realistic value of term structure of interest rate, to offer reference judgments for financial institutions.The major studies of this paper are as follows.Firstly, the section of empirical study,This paper reflects the situation that volatility of interest rate may change with time through introducing GARCH Model into Vasicek Model. But considering the series of yield frequently fluctuates asymmetrically, further applying EGARCH Model to test whether "level effect" exists in the Interbank Offered market. The empirical result indicates that EGARCH Model basing on Vasicek is relatively reasonable. Not only can it reflect the term structure of IBOR, but it can depict the anti-"level effect" of interest rate directly.Secondly, the section of applied study,This paper applies the empirical result of term structure to make price for derivative product of interest rate and forecast for interest rate .1. During pricing for interest rate swap, this paper applies the average level of long-term interest rate to substitute for the forward interest rate to make price according to the characteristic of mean-reverting. That embodies the characteristic of interest rate in term structure, also can simplify the calculate process. As a result, the difference between the interest rate of swap and the reference is relatively little, it indicates that the substitute effect is relatively ideal.2. It's an important application of term structure to forecast the future interest rate according to models of term structure. This paper forecasts the interest rate from January, 19, 2007 to April, 20, 2007. According to the forecasting result, although there is some deviation between the forecast and the actual interest rate, on the whole, the result is relatively accurate. The deviation may result from some unanticipated market factors. That's also reasonable.The innovations of this paper are as follows.Firstly , on the method of research , different from some papers only apply EGARCH Model to explain the asymmetry of offered interest rate , this paper introduces EGARCH Model on the basis of Vasicek Model . Not only can that reflect the unsymmetrical volatility of interest rate , also it can depict the term structure of offered interest rate . Furthermore, it applies the information shock curve to directly reflect the unsymmetrical phenomenon.Secondly, on the sample data of research, this paper renews the interest rate data for the study of term structure models. The sample data is from May, 24, 2004 to April, 20, 2007 .The new data can reflect recent term structure of interest rate, the model is more applicable.Thirdly, during pricing for interest rate swap, different from the majority concretely calculate the forward interest rate; this paper applies the average level of long-term interest rate to approximately substitute for the forward interest rate according to the characteristic of mean-reverting. Not only can that fully apply the characteristic of mean-reverting, but also it can simplify the calculate process. That is a kind of effective approximate method.