Mastering Python for Finance - Second Edition

The Rendleman and Bartter model

In the Rendleman and Bartter model, the short-rate process is given as follows:

Here, the instantaneous drift is θr(t) with an instantaneous standard deviation, σr(t). The Rendleman and Bartter model can be thought of as a geometric Brownian motion, akin to a stock price stochastic process that is log-normally distributed. This model lacks the property of mean reversion. Mean reversion is a phenomenon where the interest rates seem to be pulled back toward a long-term average level.

The following Python code models the Rendleman and Bartter interest-rate process:

In [ ]:    import math    import numpy as np def rendleman_bartter(r0, ...