Overnight Index Rate: Model, calibration and simulation

Abstract

In this study, the extended Overnight Index Rate (OIR) model is presented. The fitting function for the probability distribution of the OIR daily returns is based on three different Gaussian distributions which provide modelling of the narrow central peak and the wide fat-tailed component. The calibration algorithm for the model is developed and investigated using the historical OIR data.

Keywords

• Overnight Index Rate
• fat-tailed distribution
• autocorrelation
• calibration
• interest rate simulation
• stress testing