The existence of a non-stochastic or predictable risk-free interest rate has been a critical premise in financial economics. In equity and equity option pricing, since default-free bonds are assumed as risk-free assets, the risk-free interest rate may be approximated by the observable yields of short-term Treasury bills. If the dynamics of the entire term structure cannot be ignored, since none...

one of the present phenomena that virtually explain weaknesses in financial systems of different countries is financial repression. financial repression encompasses the different interferences of governments in financial markets through determining the ceiling interest on bank deposits, high rates of legal reserves, and the government’s interference in distribution of bank credits,which prevent...

We analyze the stochastic initial-boundary value problem for the elastic wave equation with random coefficients and deterministic data. We propose a stochastic collocation method for computing statistical moments of the solution or statistics of some given quantities of interest. We study the convergence rate of the error in the stochastic collocation method. In particular, we show that, the ra...

This paper studies an asset and liability management problem with extended Cox-Ingersoll-Ross (CIR) interest rate, where the financial market is composed of one risk-free asset and multiple risky assets and one zero-coupon bond. We assume that risk-free interest rate is driven by extended CIR interest rate model, while liability is modeled by Brownian motion with drift and is generally correlat...

In this work, I generalize Merton’s approach of pricing risky debt to the case where the interest rate risk is modeled by the CIR term structure. Closed form result for pricing the debt is given for the case where the firm value has non-zero correlation with the interest rate. This extends previous closed form pricing formular of zero-correlation case to the generic one of non-zero correlation ...

One of the earliest stochastic models of the term structure was developed by Vasicek (1977). His model is based on the evolution of an unspecified short-term interest rate. Although the model is developed in a fairly general framework, it is most frequently applied in a more specific form that is presented here. The Vasicek model has many advantages, though it also has some shortcomings. The mo...

a new mathematical model for the optimal production isformulated for the inventory management system under time-varyingand stochastic inflation environment for deteriorating items. the timehorizon is finite and demand rate is dependent to the inflation. in thereal situation, some but not all customers will wait for backlogged itemsduring a shortage period, such as for fashionable commodities or...

The stochastic dynamics of interest rates is a crucial element in modern term structure theories and in the pricing of the various interest rate options which are embedded in bond issues today. International studies show that no model of these dynamics is valid world-wide. This paper studies the dynamics of the short term interest rate in India (the call market rate) and shows that it follows a...