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2008 | 114 | 3 | 613-618
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Modelling of Short Term Interest Rate Based on Fractional Relaxation Equation

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In this paper, we try to model the dynamics of short term interest rate using the fractional nonhomogeneous differential equation with stochastic free term. This type of equation is similar to one which represents the viscoelastic behavior of certain materials from rheologic point of view. As a final result we obtain the closed formula for prices of zero-coupon bonds. They are analogous to those in Vasiček model, where instead of the exponential functions we have the Mittag-Leffler ones.
  • Institute of Mathematics and Cryptology, Military University of Technology, Kaliskiego 2, 00-908 Warszawa, Poland
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