Article ID: | iaor2006182 |
Country: | Netherlands |
Volume: | 163 |
Issue: | 1 |
Start Page Number: | 154 |
End Page Number: | 169 |
Publication Date: | May 2005 |
Journal: | European Journal of Operational Research |
Authors: | Bertocchi Marida, Abaffy Jozsef, Gnudi Adriana |
Keywords: | markov processes |
The paper presents a state dependent multinomial model of intertemporal changes in the term structure of interest rates. The model is a one-factor interest-rate model within the Markov family models for short-term interest rate and it extends the Ho and Lee binomial model. We derive the theoretical basis of the multinomial model, suggest a computational framework to evaluate the model's parameters and investigate the suitability of the model for the Italian market.