Enhancing Financial and Managerial Analyses Using the Fractional CIR Model

The Cox-Ingersoll-Ross (CIR) model has been widely used in finance to model interest rates and other financial variables due to its mean-reverting properties and non-negativity constraints. However, traditional CIR models often fall short in capturing the long-range dependence and memory effects observed in financial markets. To address this, we introduce the fractional Cox-Ingersoll-Ross (CIR) model, which incorporates fractional Brownian motion to model long-range dependence. This paper explores the theoretical foundations of the fractional CIR model, presents numerical methods for its solution, and discusses its applications in finance.

Keywords:

Fractional Cox-Ingersoll-Ross (CIR) model , Numerical methods , Fractional Brownian motion