The Analysis Of Pricing Interest Rate Derivatives Based On Vasicek Model

Abstract:Along with the fast development of the Interest rate liberalization, es-pecially the short-term interest rate becomes more random. Stochastic process can be used to simulate the behavior of the short-term rate which can help financial institutes price the interest rate derivatives. This is vary important for the development deriva-tives market in China. Many researchers found that the Vasicek Model was the best single factor model to simulate the SHIBOR short-term interest rate. In this paper, Vasicek Model was directly used to simulate the SHIBOR three-months interest rate. The parameters were estimated by OLS method. Then under the model, the pricing formula for Bond, Convertible Bond and Bond Option were put forward. Also we select three market bonds to do empirical analysis and the Monte Carlo Methods to calculate the price were represented. Finally, we analyzed the empirical and numerical results.