Bid and Ask spreads for the cap and floor contracts under the Liouville fractional Vasicek model

descriptionPublicationkeyboard_double_arrow_right Article , Other literature type 31 Jan 2021Publisher:Editorial Universidad de AlmeriaJournal:Studies of Applied Economics, volume 39 (issn: 1133-3197, eissn: 1697-5731,

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Authors: Farshid Mehrdoust;

doi: 10.25115/eea.v39i2.3414 , 10.25115/eea.v39i1.3414

Bid and Ask spreads for the cap and floor contracts under the Liouville fractional Vasicek model

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Abstract

This paper presents bid and ask formulas for cap and floor contracts prices byusing Wang transform under a Liouville fractional Vasicek (LfVasicek) interest rate model. To do this, the parameters of the model are calibrated by using the Newton-Raphson (NR) method. Then the standard and Liouville fractional versions of the Vasicek model are compared by the Bayes information criterion (BIC). Finally, we obtain the bid-ask boundaries for interest rate amount and cap and foor prices.

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