Pricing of Embedded Options in Bank Deposits and Loans Based on Jump-Diffusion Interest Rate Model

Table 2

Estimation method of basic parameters.

Parameter	Calculation formula	Illustration
		First, the standard deviation of each term is calculated through the interest rate data, and then the straight line reflecting the relationship between the standard deviation and the term, and it can be obtained by linear regression. The slope of the straight line is .
		The long-term average can be replaced by the average interest rate over the years, where is the historical data value of the corresponding term interest rate.
		We usually use the volatility of the base market interest rate to replace the transient interest rate volatility , which can be expressed by the standard deviation of interest rate in period , where and have the same meaning as above.
		is equal to the average number of events per unit time, where is the number of interest rate jumps, is the interval length, and its unit is month.