Analytic bond pricing for short rate dynamics evolving on matrix Lie groups |
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Authors: | Nengli Lim |
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Affiliation: | Department of Mathematics, South Kensington Campus, Imperial College London, London, SW7 2AZUK. |
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Abstract: | We provide closed-form expressions for bond prices in interest rate models based on compact Lie groups. Our approach uses a Doob transform technique and PDE solutions by the Mathieu periodic functions. As a by-product, we derive formulas for bond option prices as well as new identities for the Laplace transform of periodic functionals of Brownian motion and Brownian diffusion processes. |
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Keywords: | Bond pricing Interest rate modeling Interest rate derivatives Lie groups Mathieu equation |
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