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Discrete time Wishart term structure models

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Author Info

  • Gourieroux, Christian
  • Sufana, Razvan

Abstract

This paper reveals that the class of Affine Term Structure Models (ATSMs) introduced by Duffie and Kan (1996) is larger than previously considered in the literature. In the framework of risk factors following a Wishart autoregressive process, we define the Wishart Term Structure Model (WTSM) as an extension of a subclass of Quadratic Term Structure Models (QTSMs), derive simple parameter restrictions that ensure positive bond yields at all maturities, and observe that the usual constraint on affine processes requiring that the volatility matrix be diagonal up to a path independent linear invertible transformation can be considerably relaxed.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 35 (2011)
Issue (Month): 6 (June)
Pages: 815-824

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Handle: RePEc:eee:dyncon:v:35:y:2011:i:6:p:815-824

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Web page: http://www.elsevier.com/locate/jedc

Related research

Keywords: Affine term structure Quadratic term structure CAR process Affine process Wishart process;

References

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Citations

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Cited by:
  1. Monfort, Alain & Pegoraro, Fulvio, 2012. "Asset pricing with Second-Order Esscher Transforms," Journal of Banking & Finance, Elsevier, vol. 36(6), pages 1678-1687.
  2. Jos\'e Da Fonseca & Alessandro Gnoatto & Martino Grasselli, 2012. "A flexible matrix Libor model with smiles," Papers 1203.4786, arXiv.org.

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