A YIELD‐FACTOR MODEL OF INTEREST RATES

Mathematical Finance - Tập 6 Số 4 - Trang 379-406 - 1996
Darrell Duffie1, Rui Kan2,3
1Graduate School of Business, Stanford University
2First Boston Corporation, New York
3We are grateful for discussions with Ken Singleton, Bob Litteman, Antoine Conze, Nicole El Karoui, Vincent Lacoste, Jeremy Evnine, Antoine Frachot, Henri Pagès, Jean-Philippe Lesne. Fischer Black, Ayman Hindy, George Pennachi, Rob Bliss, Prasad Nannisetty, Stan Pliska, Chris Rogers. Oldrich Vasicek, and especially to a referee for pointing out an error in an earlier version.

Tóm tắt

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.

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