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A Complete Markovian Stochastic Volatility Model in the HJM Framework |
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| Authors: | Carl Chiarella Oh Kang Kwon |
| Institution: | (1) School of Finance and Economics, University of Technology, Sydney, P.O. Box 123, Broadway, NSW, 2007, Australia;(2) School of Finance and Economics, University of Technology, Sydney, P.O. Box 123, Broadway, NSW, 2007, Australia |
| Abstract: | This paper considers a stochastic volatility version of the Heath, Jarrow and and Morton (1992) term structure model. Market completeness is obtained by adapting the Hobson and Rogers (1998) complete stochastic volatility stock market model to the interest rate setting. Numerical simulation for a special case is used to compare the stochastic volatility model against the traditional Vasicek (1977) model. |
| Keywords: | Health-Jarrow-Morton model interest rate derivatives stochastic volatility term structure of interest rates |
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