Main purpose of this paper is to describe the background of interest rate modeling, i.e. introduce main division of interest rate models, explain what is the instantaneous interest rate and what is its suitable representative. We will deeply focus on Vaš́ıček and Hull-White model and analyze problem of the calibration of these models. Introduction It is well known that interest rates and their s...

made significant efforts to establish and improve their procedures for interest rate risk management, including using economic models of interest rates and related models of credit risk (Lopez 2001a, b).At the same time, bank supervisors worldwide, including the Federal Reserve, have been expanding their knowledge and oversight of interest rate risk management techniques. For example, U.S. bank...