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On Markovian short rates in term structure models driven by jump-diffusion processes

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  • Gapeev Pavel V.
  • Küchler Uwe

Abstract

In this paper a bond market model and the related term structure of interest rates are studied where prices of zero coupon bonds are driven by a jump-diffusion process. A criterion is derived on the deterministic forward rate volatilities underwhich the short rate process isMarkovian. In the case that the volatilities depend on the short rate sufficient conditions are presented for the existence of a finite-dimensional Markovian realization of the term structure model.

Suggested Citation

  • Gapeev Pavel V. & Küchler Uwe, 2006. "On Markovian short rates in term structure models driven by jump-diffusion processes," Statistics & Risk Modeling, De Gruyter, vol. 24(2), pages 1-17, December.
    • Handle: RePEc:bpj:strimo:v:24:y:2006:i:2:p:17:n:3
    DOI: 10.1524/stnd.2006.24.2.255
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    References listed on IDEAS

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