How Interest Rates Actually Behave: Empirical Evidence
We have spent several chapters building interest rate models. Vasicek, CIR, Hull and White, Ho and Lee, Black-Derman-Toy. Each one chosen for its nice mathematical properties, clean closed-form solutions, and easy calibration. But here is the uncomfortable question Wilmott asks in Chapter 36: do any of these models actually match what interest rates do in the real world?