We show how to implement arbitrage-free models of the short-term interest rate in a discretetime setting that allows a continuum of rates at any particular date. Discrete time allows approximate pricing of interest rate contingent claims that cannot be valued in continuous-time models. It is usually associated with discrete states, with possible interest rates restricted to a limited number of ...

The No-Arbitrage model by Schonbucher [30] is combined with the Extended Vasicek Term Structure Model and applied to the pricing of DM-Eurobonds issued by sovereigns from emerging economies. Practical hedging according to the model is investigated. A portfolio of DM-Eurobonds is analyzed using the risk measures "Shortfall" and "Value at Risk".

This article develop an inference problem for Vasicek model driven by a general Gaussian process. We construct least squares estimator and moment the drift parameters of Vasic...

We study the optimal stopping problems embedded in a typical mortgage. Despite a possible non-rational behaviour of the typical borrower of a mortgage, the problem is worth to be solved for the lender to hedge against the prepayment risk, and because many mortgage-backed securities pricing model incorporate this suboptimality via a so-called prepayment function which can depend, at time t, on t...

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...