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Jump-Diffusion Processes and the Term Structure of Interest Rates

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Author Info
 Ahn, Chang Mo
Thompson, Howard E
Abstract

The term structure is investigated using an extension of the Cox, Ingersoll, and Ross model when state variables and production technologies follow jump-diffusion processes. In the presence of jump diffusions, the authors find: (1) R. Merton's multi-beta CAPM does not hold in general; (2) D. Breeden's single consumption beta does not hold; (3) traditional expectations theory of the term structure is not consistent with equilbrium; and (4) investors with logarithmic utility will hedge movements in the investment opportunities set. , Copyright 1988 by American Finance Association.

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Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 43 (1988)
Issue (Month): 1 (March)
Pages: 155-74
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Handle: RePEc:bla:jfinan:v:43:y:1988:i:1:p:155-74

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  1. Yong Zeng & Shu Wu, 2004. "A General Equilibrium Model of the Term Structure of Interest Rates under Regime-switching Risk," Econometric Society 2004 North American Summer Meetings 304, Econometric Society. [Downloadable!]
  2. René Garcia & Pierre Perron, 1995. "An Analysis of the Real Interest Rate Under Regime Shifts," CIRANO Working Papers 95s-05, CIRANO. [Downloadable!]
    Other versions:
  3. Shu Wu & Yong Zeng, 2005. "The Term Structure of Interest Rates under Regime Shifts and Jumps," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 200520, University of Kansas, Department of Economics, revised Oct 2005. [Downloadable!]
  4. J. Benson Durham, 2005. "Jump-diffusion processes and affine term structure models: additional closed-form approximate solutions, distributional assumptions for jumps, and parameter estimates," Finance and Economics Discussion Series 2005-53, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  5. Carl Chiarella & Christina Nikitopoulos-Sklibosios & Erik Schlogl, 2005. "A Control Variate Method for Monte Carlo Simulations of Heath-Jarrow-Morton with Jumps," Research Paper Series 167, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
  6. Stefan JASCHKE, . "Exploratory Data Analysis of Short-Term Interest Rates," Sonderforschungsbereich 373 1994-47, Humboldt Universitaet Berlin.
  7. Lars E.O. Svensson, 1990. "The Foreign Exchange Risk Premium in a Target Zone with Devaluation Risk," NBER Working Papers 3466, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Brito, R. & Flores, R., 2001. "A Jump Difusion Yield Factor Model of Interest Rate," Finance Lab Working Papers flwp_37, Finance Lab, Ibmec São Paulo. [Downloadable!]
  9. Khalaf, Lynda & Saphores, Jean-Daniel & Bilodeau, Jean-François, 2000. "Simulation-Based Exact Tests with Unidentified Nuisance Parameters Under the Null Hypothesis: the Case of Jumps Tests in Models with Conditional Heteroskedasticity," Cahiers de recherche 0004, GREEN. [Downloadable!]
    Other versions:
  10. Sanghoon Lee, 2004. "Approximation of A Jump-Diffusion Process," Econometric Society 2004 Far Eastern Meetings 412, Econometric Society. [Downloadable!]
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