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An Empirical Comparison Of Interest Rate Models For Pricing Zero Coupon Bond Options

The aim of this study is to compare the performance of the four interest rate
models (Vasicek Model, Cox Ingersoll Ross Model, Ho Lee Model and Black Der-
man Toy Model) that are commonly used in pricing zero coupon bond options.
In this study, 1{5 years US Treasury Bond daily data between the dates June 1,
1976 and December 31, 2007 are used. By using the four interest rate models,
estimated option prices are compared with the real observed prices for the begin-
ing work days of each months of the years 2004 and 2005. The models are then
evaluated according to the sum of squared errors. Option prices are found by
constructing interest rate trees for the binomial models based on Ho Lee Model
and Black Derman Toy Model and by estimating the parameters for the Vasicek
and the Cox Ingersoll Ross Models.

Identiferoai:union.ndltd.org:METU/oai:etd.lib.metu.edu.tr:http://etd.lib.metu.edu.tr/upload/3/12609786/index.pdf
Date01 August 2008
CreatorsSenturk, Huseyin
ContributorsUgur, Omur
PublisherMETU
Source SetsMiddle East Technical Univ.
LanguageEnglish
Detected LanguageEnglish
TypeM.S. Thesis
Formattext/pdf
RightsTo liberate the content for public access

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