Bid and Ask spreads for the cap and floor contracts under the Liouville fractional Vasicek model
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Published:2021-01-31
Issue:1
Volume:39
Page:
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ISSN:1697-5731
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Container-title:Studies of Applied Economics
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language:
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Short-container-title:EEA
Author:
Mehrdoust Farshid
Abstract
This paper presents bid and ask formulas for cap and floor contracts prices byusing Wang transform under a Liouville fractional Vasicek (LfVasicek) interest rate model. To do this, the parameters of the model are calibrated by using the Newton-Raphson (NR) method. Then the standard and Liouville fractional versions of the Vasicek model are compared by the Bayes information criterion (BIC). Finally, we obtain the bid-ask boundaries for interest rate amount and cap and foor prices.
Publisher
Editorial Universidad de Almeria
Subject
Economics and Econometrics