Heath, Jarrow and Morton interest rate modelling using principal component analysis

performance;models;ninety-day bank bill;SydneyFutures Exchange;1993 and 2000;Heath;Jarrow;and Morton framework;one;two;and three factor;Principal Components Analysis;forwardrate volatility;maturity of the option,;HF Commerce;HF5601 Accounting;HG Finance

Tamagushiku, Cedreece

University of Otago

关键词: performance;    models;    ninety-day bank bill;    SydneyFutures Exchange;    1993 and 2000;    Heath;    Jarrow;    and Morton framework;    one;    two;    and three factor;    Principal Components Analysis;    forwardrate volatility;    maturity of the option,;    HF Commerce;    HF5601 Accounting;    HG Finance;   

Others  :  https://ourarchive.otago.ac.nz/bitstream/10523/1378/3/TamagushikuCedreeceocrmin.pdf

来源: Otago University Research Archive

【 摘 要 】

The purpose of this paper is to investigate the performance of three different models in the pricing of call options on ninety-day bank bill futures traded on the Sydney Futures Exchange between 1993 and 2000. The three models analysed are embedded into the Heath, Jarrow, and Morton framework namely; the one, two, and three factor models. Principal Components Analysis was applied in order to provide the forward rate volatility functions necessary to implement several popular multi-factor versions of the Heath, Jarrow, and Morton model. Results showed that the three-factor model consistently outperforms the one and two-factor models. Also the pricing errors are positively correlated with the time to maturity of the option and that no real relationship existed between the errors of one and two-factor models and the date and the moneyness of the options. Although three-factor models exhibited lower errors as time progressed.