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Delay Ait-Sahalia-type interest rate model with jumps and its strong approximation

Author

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  • Coffie Emmanuel

    (Institute for Financial and Actuarial Mathematics, University of Liverpool, Liverpool, United Kingdom)

Abstract

In this paper, we study the analytical properties of the true solution to the generalised delay Ait-Sahalia-type interest rate model with Poisson-driven jumps. Since this model does not have a closed-form solution, we employ several new truncated Euler-Maruyama (EM) techniques to investigate the finite-time strong convergence theory of the numerical solution under the local Lipschitz condition plus the Khasminskii-type condition. We justify the strong convergence result for Monte Carlo calibration and valuation of some debt and derivative instruments.

Suggested Citation

  • Coffie Emmanuel, 2023. "Delay Ait-Sahalia-type interest rate model with jumps and its strong approximation," Statistics & Risk Modeling, De Gruyter, vol. 40(3-4), pages 67-89, July.
    • Handle: RePEc:bpj:strimo:v:40:y:2023:i:3-4:p:67-89:n:1
    DOI: 10.1515/strm-2022-0013
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