Abstract
It is well known that the CIR model, as introduced in 1985, is inadequate for modelling the current market environment with negative short rates, r(t) . Moreover, in the CIR model, the stochastic part goes to zero with the rates, neither volatility nor long term mean change with time, or fit with skewed (fat tails) distribution of r(t) , etc. To overcome the limitations of the CIR, several different approaches have been proposed to date: multi-factor models such as the Hull and White or the Chen models to the CIR++ by Brigo and Mercurio. Here, we explain how our extension of the CIR framework may fit well to market short interest rates.
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Orlando, G., Mininni, R.M., Bufalo, M. (2018). A New Approach to CIR Short-Term Rates Modelling. In: Mili, M., Samaniego Medina, R., di Pietro, F. (eds) New Methods in Fixed Income Modeling. Contributions to Management Science. Springer, Cham. https://doi.org/10.1007/978-3-319-95285-7_2
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DOI: https://doi.org/10.1007/978-3-319-95285-7_2
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