PCA & Monte Carlo Simulation for Vasicek Model in Python
The Vasicek model is a mathematical model describing the evolution of interest rates.
It is a type of one-factor short-rate model as it describes interest rate movements as driven by only one source of market risk.
The Vasicek model assumes that the short-term interest rate follows a mean-reverting process, where the rate tends to move back to a long-term average level over time.
I explained how to use principal component analysis (PCA) for the interest rate models.
I demonstrated how to calibrate Vasiceck model and how to run Monte Carlo simulations for Vasicek model.
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The Python code is uploaded into https://github.com/AIMLModeling/PCAVa...