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Uncertain term structure model of interest rate

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Abstract

Term structure models describe the evolution of the yield curve through time, without considering the influence of risk, tax, etc. Recently, uncertain processes were initialized and applied to option pricing and currency model. Under the assumption of short interest rate following uncertain processes, this study investigates the term-structure equation. This equation is first derived for valuing zero-coupon bond. Finally, analytic solutions of the uncertain interest rate equation are given when the process of interest rate is assumed to be the uncertain counterparts of the Ho-Lee model and Vasicek model, respectively.

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Acknowledgments

This work was supported by National Natural Science Foundation of China (Grant No. 61074193), Program for New Century Excellent Talents in University and Nankai University Project Funds for Young Teachers (Grant No. NKQ1118).

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Authors and Affiliations

  1. Department of Risk Management and Insurance, Nankai University, Tianjin, 300071, China

    Xiaowei Chen

  2. Uncertain Systems Lab, School of Information, Renmin University of China, Beijing, 100872, China

    Jinwu Gao

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  1. Xiaowei Chen
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  2. Jinwu Gao
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Correspondence to Jinwu Gao.

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Chen, X., Gao, J. Uncertain term structure model of interest rate. Soft Comput 17, 597–604 (2013). https://doi.org/10.1007/s00500-012-0927-0

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