This paper presents the one- and the multifactor versions of a term structure model in which the factor dynamics are given by Cox/Ingersoll/Ross (CIR) type quot;square rootquot; diffusions with piecewise constant parameters. The model is fitted to initial term structures given by a finite number...

The effect of model and parameter misspecification on the effectiveness of Gaussian hedging strategies for derivative financial instruments is analyzed, showing that Gaussian hedges in the quot;naturalquot; hedging instruments are particularly robust. This is true for all models the imply...