WHEN IS THE SHORT RATE MARKOVIAN? |
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| Authors: | Andrew Carverhill |
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| Affiliation: | Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong |
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| Abstract: | We answer this question in the very general context of the n-factor Heath, Jarrow, and Morton model for the evolution of the term structure of interest rates, with nonrandom volatility. the answer is that a constraint is imposed on the behavior of the volatility structure. We explain the importance of this result for the design of efficient numerical algorithms for the valuation of options on the term structure. |
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| Keywords: | term structure of interest rates short rate Heath Jarrow Morton model |
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