Modelling hashtag#short_term_interest_rates sometimes requires the hashtag#stochastic_model to be defined as the solution to a stochastic differential equation, so it is necessary to perform a time discretisation and then simulate the random component. Attached is an algorithm for simulating the path of a process called CKLS, which is a generalisation of several well-known processes, such as Brownian motion, the Ornstein-Uhlenbeck process, CIR, and so on.
[1] CHAN, K. C., KAROLYI, G. A., LONGSTAFF, F. A., & SANDERS, A. B. (1992).
An Empirical Comparison of Alternative Models of the Short-Term Interest Rate. The Journal of Finance, 47(3), 1209–1227.
Modelling hashtag#short_term_interest_rates sometimes requires the hashtag#stochastic_model to be defined as the solution to a stochastic differential equation, so it is necessary to perform a time discretisation and then simulate the random component. Attached is an algorithm for simulating the path of a process called CKLS, which is a generalisation of several well-known processes, such as Brownian motion, the Ornstein-Uhlenbeck process, CIR, and so on.
[1] CHAN, K. C., KAROLYI, G. A., LONGSTAFF, F. A., & SANDERS, A. B. (1992). An Empirical Comparison of Alternative Models of the Short-Term Interest Rate. The Journal of Finance, 47(3), 1209–1227.