A YIELD-FACTOR MODEL OF INTEREST RATES
This paper presents a consistent and arbitrage-free multifactor model of the term structure of interest rates in which yields at selected fixed maturities follow a parametric muitivariate Markov diffusion process with "stochastic volatility." the yield of any zero-coupon bond is taken to be a maturity-dependent affine combination of the selected "basis" set of yields. We provide necessary and sufficient conditions on the stochastic model for this affine representation. We include numerical techniques for solving the model, as well as numerical techniques for calculating the prices of term-structure derivative prices. the case of jump diffusions is also considered. Copyright 1996 Blackwell Publishers.
Year of publication: |
1996
|
---|---|
Authors: | Duffie, Darrell ; Kan, Rui |
Published in: |
Mathematical Finance. - Wiley Blackwell, ISSN 0960-1627. - Vol. 6.1996, 4, p. 379-406
|
Publisher: |
Wiley Blackwell |
Saved in:
freely available
Saved in favorites
Similar items by person
-
Universal state prices and asymmetric information
Duffie, Darrell, (2002)
-
A yield-factor model of interest rates
Duffie, Darrell, (1996)
-
Universal state prices and asymmetric information
Duffie, Darrell, (2002)
- More ...