Estimating the short rate from the term structures in the Vasicek model

Jana Halgašová, Beáta Stehlíková, Zuzana Bučková


In short rate models, bond prices and term structures of interest rates are determined
by the parameters of the model and the current level of the instantaneous interest rate (so
called short rate). The instantaneous interest rate can be approximated by the market
overnight, which - however - can be influenced by speculations on the market. The aim
of this paper is to propose calibration method where we consider the short rate to be a
variable unobservable on the market and estimate it together with the model parameters
for the case of Vasicek model.

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