A general characterization of one factor affine term structure models |
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Authors: | Damir Filipović |
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Institution: | (1) Department of Mathematics, ETH, CH-8092 Zurich, Switzerland (e-mail: filipo@math.ethz.ch) , CH |
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Abstract: | We give a complete characterization of affine term structure models based on a general nonnegative Markov short rate process.
This applies to the classical CIR model but includes as well short rate processes with jumps. We provide a link to the theory
of branching processes and show how CBI-processes naturally enter the field of term structure modelling. Using Markov semigroup
theory we exploit the full structure behind an affine term structure model and provide a deeper understanding of some well-known
properties of the CIR model. Based on these fundamental results we construct a new short rate model with jumps, which extends
the CIR model and still gives closed form expressions for bond options.
Manusript received: June 2000, final version received: October 2000 |
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Keywords: | : Affine Term Structure Models CBI-Processes Infinitely Decomposable Processes Non-continuous Markovian Short Rates |
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