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1. Fundamental solution of bond pricing in the Ho-Lee stochastic interest rate model under the invariant criteria

   Author: Burhaneddin İzgi; Ahmet Bakkaloğlu

   Published: 2017

   Publisher:  BİSKA Bilisim Company

   We study the fundamental solution of bond-pricing in the Ho-Lee stochastic interest rate model under the invariant criteria. We obtain transformations between Ho-Lee model with the corresponding linear (1 + 1) partial differential equation and the... more

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   Full text:	https://doaj.org/article/1b7df551dc5b4b569894d0833a9e7d7b
   Link for citation:	https://doi.org/10.20852/ntmsci.2017.138

   We study the fundamental solution of bond-pricing in the Ho-Lee stochastic interest rate model under the invariant criteria. We obtain transformations between Ho-Lee model with the corresponding linear (1 + 1) partial differential equation and the first Lie canonical form which is identical to the classical heat equation. These transformations help us to generate the fundamental solution for the Ho-Lee model with respect to the fundamental solution of the classical heat equation sense. Moreover, as a financial application of the Ho-Lee model, we choose the drift term from power functions and perform simulations via Milstein method. Furthermore, we obtain important results for the parameter calibration of the corresponding drift term by using the simulation results.

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   Source:	BASE Selection for Comparative Literature
   Language:	English
   Media type:	Article (journal)
   Format:	Online
   Parent title:	New Trends in Mathematical Sciences, Vol 5, Iss 1, Pp 196-203 (2017)
   Subjects:	Ho-Lee stochastic interest rate model; heat equation; canonical Lie forms; Lie symmetry analysis; invariant criteria; simulations; Applied mathematics. Quantitative methods; Mathematics