Estimating mean reversions in interest rate models
The speed of factors’ mean reversion in rate models is estimated
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Estimating mean-reversion speeds is an important step in calibrating interest rate models for the purposes of derivatives pricing. Relatively little has been written about it, especially for multi-factor models. Here, Vladimir V. Piterbarg and Igor Duchitskii present a simple yet general framework for estimating the mean-reversion speeds of model factors for a broad subclass of multi-factor Heath-Jarrow-Morton models. Their procedure is independent of market prices
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