|
|
| Line 1: |
Line 1: |
| The '''Rendleman–Bartter model''' (Richard J. Rendleman, Jr. and Brit J. Bartter) in [[Mathematical finance|finance]] is a [[short rate model]] describing the evolution of [[interest rates]]. It is a "one factor model" as it describes interest rate movements as driven by only one source of [[market risk]]. It can be used in the valuation of [[interest rate derivative]]s. It is a [[stochastic asset model]].
| | I would like to introduce myself to you, I am Andrew and my spouse doesn't like it at all. Ohio is where her home is. I am an invoicing officer and I'll be promoted quickly. The preferred hobby for him and his children is fashion and he'll be starting something else along with it.<br><br>Also visit my weblog ... [http://myfusionprofits.com/groups/find-out-about-self-improvement-tips-here/ best psychic readings] |
| | |
| The model specifies that the [[instantaneous interest rate]] follows a [[geometric Brownian motion]]:
| |
| | |
| :<math>dr_t = \theta r_t\,dt + \sigma r_t\,dW_t</math>
| |
| | |
| where ''W<sub>t</sub>'' is a [[Wiener process]] modelling the random market risk factor. The drift parameter, <math>\theta</math>, represents a constant expected instantaneous rate of change in the interest rate, while the [[standard deviation]] parameter, <math>\sigma</math>, determines the [[Volatility (finance)|volatility]] of the interest rate.
| |
| | |
| This is one of the early models of the short term interest rates, using the same [[stochastic process]] as the one already used to describe the dynamics of the underlying price in [[stock options]]. Its main disadvantage is that it does not capture the [[mean reversion]] of interest rates (their tendency to revert toward some value or range of values rather than wander without bounds in either direction).
| |
| | |
| Note that in 1979 Rendleman-Bartter also published a version of the [[Binomial options pricing model]] . ("Two-State Option Pricing". Journal of Finance 24: 1093-1110.)
| |
| | |
| ==References==
| |
| *{{cite book | author=Hull, John C. | title=Options, Futures and Other Derivatives| year=2003 | publisher = Upper Saddle River, NJ: [[Prentice Hall]] | isbn = 0-13-009056-5}}
| |
| *{{cite journal | author=Rendleman, R. and B. Bartter | title=The Pricing of Options on Debt Securities | journal=Journal of Financial and Quantitative Analysis| year=1980 | volume=15 | pages=11–24 | doi=10.2307/2979016}}
| |
| | |
| {{DEFAULTSORT:Rendleman-Bartter model}}
| |
| [[Category:Finance theories]]
| |
| [[Category:Interest rates]]
| |
| [[Category:Short-rate models]]
| |
I would like to introduce myself to you, I am Andrew and my spouse doesn't like it at all. Ohio is where her home is. I am an invoicing officer and I'll be promoted quickly. The preferred hobby for him and his children is fashion and he'll be starting something else along with it.
Also visit my weblog ... best psychic readings