Interest-rate simulation under the real-world measure within a Gaussian HJM framework

Takashi Yasuoka

    Research output: Contribution to journalArticlepeer-review

    Abstract

    This paper studies an interest-rate simulation for risk management under the real-world measure. First, this paper proposes a method to estimate the market price of risk from historical data in a Gaussian Heath, Jarrow, and Morton framework. Next, properties of the simulation are examined in connection with historical data. Finally, the market price of risk is roughly interpreted in regard to the historical change in interest rates. These results are explained through numerical examples.
    Original languageEnglish
    Number of pages7
    JournalQuantitative Finance Letters
    Volume3
    Issue number1
    DOIs
    Publication statusPublished - 2015 Jan 15

    Keywords

    • Interest-rate risk assessment,
    • Interest-rate simulation
    • Market price of risk
    • Gaussian HJM model

    ASJC Scopus subject areas

    • Economics, Econometrics and Finance(all)

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