Thesis Type: Post Graduate
Institution Of The Thesis: Middle East Technical University, Turkey
Approval Date: 2005
Thesis Language: English
Student: Serkan Zeytun
Consultant: AZİZE HAYFAVİAbstract:
In the original Vasicek model interest rates are calculated assuming that volatility remains constant over the period of analysis. In this study, we constructed a stochastic volatility model for interest rates. In our model we assumed not only that interest rate process but also the volatility process for interest rates follows the mean-reverting Vasicek model. We derived the density function for the stochastic element of the interest rate process and reduced this density function to a series form. The parameters of our model were estimated by using the method of moments. Finally, we tested the performance of our model using the data of interest rates in Turkey.