webcab.lib.finance.pricing.models.rate
Class CoxIngersollRoss

java.lang.Object
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  +--webcab.lib.finance.pricing.models.StochasticDifferentialModel
        |
        +--webcab.lib.finance.pricing.core.models.MarkovModel
              |
              +--webcab.lib.finance.pricing.core.models.SemimartingaleMarkovModel
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                    +--webcab.lib.finance.pricing.core.models.RationalSemimartingaleMarkovModel
                          |
                          +--webcab.lib.finance.pricing.models.rate.CoxIngersollRoss

public class CoxIngersollRoss

extends RationalSemimartingaleMarkovModel

Cox Ingersoll Ross is an equilibrium model derived under the assumption that interest rates are determined by the supply and demand of individuals having a logarithmic utility function. This spot rate process is semimartingale and the stochastic differential equation is:

• dr = adjustmentSpeed * (averageLongTermRate - r) * dt + sigma * sqrt(r) * dW

The model is very similar to Vasicek, with the exception that its variance is proportional to the short rate, rather than constant.

The model guarantees the positivity of interest rates if the following condition is satisfied: sigma * sigma < 2 * adjustmentSpeed * averageLongTermRate

Constructor Summary

CoxIngersollRoss(String name, double averageLongTermRate, double adjustmentSpeed, double sigma, double initialRate)
Creates a new instance of CoxIngersollRoss.

Method Summary

int[]	getCategoriesForExternalReferences()
IntervalRat	getCoef(int nProcess, int nCoef)
double[][]	getCorrelationMatrix()
int	getExternal()
String[]	getExternalReferences(Context context)
double[]	getExternalVariables(Context context)
Context	getInitialContext()
int[]	getNFactors()
int	getNumeraire()
int	getNVariables()
int	getTraded()
StochasticDifferentialModel	getUpdatedModel(Context context, double t) Sets the initial values of the models' variables to the ones given as parameters.

Methods inherited from class webcab.lib.finance.pricing.core.models.RationalSemimartingaleMarkovModel

comp, evaluateCoef

Methods inherited from class webcab.lib.finance.pricing.core.models.SemimartingaleMarkovModel

addInternalJumpConditions, dV, evaluateNotTradedAbsoluteCoef, evaluateNotTradedTimeCoef, evaluateNotTradedWienerCoef, evaluateTimeCoef, evaluateWienerCoef, getAbsoluteCoef, getExternalCorrelationMatrix, getExternalReferencesInJumpConditions, getFixedVariablesForCondition, getJumpCondition, getJumpValue, getNExternalFactors, getNJumpConditions, getNotTradedAbsoluteCoef, getNotTradedTimeCoef, getNotTradedWienerCoef, getTimeCoef, getTotalExternalFactors, getTotalTradedFactors, getWienerCoef, hasExternalJumpConditions, resetOnDemand

Methods inherited from class webcab.lib.finance.pricing.core.models.MarkovModel

dV_MarkovModel, dV

Methods inherited from class webcab.lib.finance.pricing.models.StochasticDifferentialModel

compoundModel, compoundModel, compoundModel, compoundModel, compoundModel, compoundModel, dV_StochasticDifferentialModel, getCholeskyMatrix, getContext, getStartVariableForContext, getSuperModel, getTotalFactors, getVariables, seekRoot, seekUpwards, setCholeskyMatrix, setSuperModel

Methods inherited from class java.lang.Object

clone, equals, finalize, getClass, hashCode, notify, notifyAll, toString, wait, wait, wait

Constructor Detail

CoxIngersollRoss

public CoxIngersollRoss(String name,
                        double averageLongTermRate,
                        double adjustmentSpeed,
                        double sigma,
                        double initialRate)
                 throws BondsException

Creates a new instance of CoxIngersollRoss.

Parameters:

name - the name of the spot rate context produced

averageLongTermRate - the equilibrium value of the spot rate

adjustmentSpeed - the reversion speed (towards the equilibrium value)

sigma - a measure of the spot rate volatility

initialRate - the initial value of the spot rate

Throws:

BondsException

Method Detail

getNVariables

public int getNVariables()

Specified by:

getNVariables in class StochasticDifferentialModel

getNFactors

public int[] getNFactors()

Specified by:

getNFactors in class StochasticDifferentialModel

getInitialContext

public Context getInitialContext()

Specified by:

getInitialContext in class StochasticDifferentialModel

getCorrelationMatrix

public double[][] getCorrelationMatrix()

Specified by:

getCorrelationMatrix in class StochasticDifferentialModel

getNumeraire

public int getNumeraire()

Specified by:

getNumeraire in class StochasticDifferentialModel

getTraded

public int getTraded()

Specified by:

getTraded in class SemimartingaleMarkovModel

getExternal

public int getExternal()

Specified by:

getExternal in class SemimartingaleMarkovModel

getExternalVariables

public double[] getExternalVariables(Context context)

Specified by:

getExternalVariables in class SemimartingaleMarkovModel

getExternalReferences

public String[] getExternalReferences(Context context)

Specified by:

getExternalReferences in class SemimartingaleMarkovModel

getCategoriesForExternalReferences

public int[] getCategoriesForExternalReferences()

Specified by:

getCategoriesForExternalReferences in class SemimartingaleMarkovModel

getCoef

public IntervalRat getCoef(int nProcess,
                           int nCoef)
                    throws BondsException

Specified by:

getCoef in class RationalSemimartingaleMarkovModel

BondsException

getUpdatedModel

public StochasticDifferentialModel getUpdatedModel(Context context,
                                                   double t)
                                            throws BondsException

Description copied from class: StochasticDifferentialModel

Sets the initial values of the models' variables to the ones given as parameters.

Specified by:

getUpdatedModel in class StochasticDifferentialModel

Parameters:

context - the context which will be the new initial context of the model

t - the initial moment for the model

Returns:

StochasticDifferentialModel

Throws:

BondsException