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Cox-Ingersoll-Ross (CIR) Interest Rate model - EXCEL example
About the course
The course consists of an EXCEL example that demonstrates how calibrated parameters may be used with the CIR model process to simulate short-term interest rates and model longer term rates. It includes:
- Using the daily treasury yield curve rates for the period 2-Jan-2009 to 27-Jul-2010 for the parameter calibration exercise.
- Calculating spreads between the short term rate and the longer term rates for as of 27-Jul-2010. These will be used to model the longer term interest rates.
- Using the simple discretisation process to calibrate the parameters of the CIR model
- Using the derived parameters to simulate the short term rates for the next 360 days period
- Using the derived spreads and the projected short term rates to determine the long-term interest rates
- Graphically representing the results
After taking this course you will be able to:
- Estimate parameters of the continuous CIR model using discrete interest rate data with a simple discretisation representation of the model
- Apply the least squares method to calibrate the model to a given historical interest rates data set
- Simulate short term rates for a future period
- Determine longer term rates using the derived spreads and the projected short term rates
- Graph the results
Familiarity with basic mathematics and EXCEL and some knowledge of regression analysis and parameter estimation techniques.
The course is aimed at individuals responsible for asset liability management and risk management, including the simulation and stress testing of rate sensitive asset and liability portfolios within banks, insurance companies, mutual funds as well as those involved in the pricing of money market, derivatives and structured products.