A relaxed cutting plane algorithm for solving the Vasicek-type forward interest rate model |
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Authors: | Homing Chen Cheng-Feng Hu |
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Affiliation: | 1. Department of Money and Banking, National ChengChi University, Taipei 115, Taiwan;2. Department of Industrial Engineering and Management, I-Shou University, Ta-Hsu, Kaohsiung 84001, Taiwan |
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Abstract: | This work considers the solution of the Vasicek-type forward interest rate model. A deterministic process is adopted to model the random behavior of interest rate variation as a deterministic perturbation. It shows that the solution of the Vasicek-type forward interest rate model can be obtained by solving a nonlinear semi-infinite programming problem. A relaxed cutting plane algorithm is then proposed for solving the resulting optimization problem. The features of the proposed method are tested using a set of real data and compared with some commonly used spline fitting methods. |
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Keywords: | Semi-infinite programming Forward interest rate |
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