Linear parabolic partial differential equations (PDE’s) and diffusion models are closely linked through the celebrated Feynman-Kac representation of solutions to PDE’s. In asset pricing theory, this leads to the representation of derivative prices as solutions to PDE’s. We give a number of...

In this paper we propose an estimation method for two classes of semiparametric scalar diffusion models driven by a Brownian motion: In the first class, only the diffusion term is parameterised while the drift is unspecified; in the second, the drift term is specified while the diffusion term is...

We propose a semiparametric single-factor diffusion model for the term structure of interest rate. The This model is highly flexible and encompasses most parametric single-factor models proposed in the literature. We fit the semiparametric model to a proxy of the Eurodollar short term interst...