A Classification of Two-Factor Affine Diffusion Term Structure Models

Dai and Singleton (2000) introduced a typology of affine diffusionmodels when the domain of admissible values of the factors isan intersection of half planes and under some additional constraintson the parameters. This condition on the domain and the additionalsufficient constraints are restrictive and can considerablydiminish the practical interest of affine models. In this articlewe successfully address the research agenda sketched by Duffie,Filipovic, Schachermayer (2003, section 12.2, p. 1042). A systematicinvestigation is performed and our article provides a completetypology in the two-factor case, without prior restrictionson the domain and on the parameters.