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Advisor(s)
Abstract(s)
In this article, we calibrate the Vasicek interest rate model under the risk neutral measure by learning the model parameters using Gaussian processes for machine learning regression. The calibration is done by maximizing the likelihood of zero coupon bond log prices, using mean and covariance functions computed analytically, as well as likelihood derivatives with respect to the parameters. The maximization method used is the conjugate gradients. The only prices needed for calibration are zero coupon bond prices and the parameters are directly obtained in the arbitrage free risk neutral measure.
Description
Keywords
Arbitrage free risk neutral measure Calibration Gaussian processes for machine learning Vasicek interest rate model Zero coupon bond prices
Citation
SOUSA, J. Beleza.; ESQUIVEL, M. L.; GASPAR, R. M. – Machine learning Vasicek model calibration with Gaussian processes. Communications in Statistics – Simulation and Computation. ISSN: 0361-0918. Vol. 41, N.º 6 (2012), pp. 776-786.
Publisher
Taylor & Francis