Computing assignment based on Vasicek’s Equilibrium Model of the Short Rate Construct a term structure (for each of the frequencies listed below) based on Vasicek’s Equilibrium Model of zero rates for 0.5, 1, 2, 3, 5, 7, 10, 20, and 30 years. Use (a) weekly, and (b) monthly frequencies for the 3-month T-bill rate (the short term rate) over the entire time period for which the rates are available on the Federal Reserve Economic Database (FRED). 1. Graph the term structure derived from the Vasicek Model and compare it with the term structure based on the actual market rates from FRED. 2. Compare and contrast the term structures derived from the two estimations above. 3. How does the market price of risk of the short rate differ across the two estimations? Any potential explanations?
Computing assignment based on Vasicek’s Equilibrium Model of the Short Rate
Construct a term structure (for each of the frequencies listed below) based on Vasicek’s Equilibrium Model of zero rates for 0.5, 1, 2, 3, 5, 7, 10, 20, and 30 years. Use (a) weekly, and (b) monthly frequencies for the 3-month T-bill rate (the short term rate) over the entire time period for which the rates are available on the Federal Reserve Economic Database (FRED).
1. Graph the term structure derived from the Vasicek Model and compare it with the term structure based on the actual market rates from FRED.
2. Compare and contrast the term structures derived from the two estimations above.
3. How does the market price of risk of the short rate differ across the two estimations? Any potential explanations?
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