A general characterization of one factor affine term structure models
AbstractWe give a complete characterization of affine term structure models based on a general nonnegative Markov short rate process. This applies to the classical CIR model but includes as well short rate processes with jumps. We provide a link to the theory of branching processes and show how CBI-processes naturally enter the field of term structure modelling. Using Markov semigroup theory we exploit the full structure behind an affine term structure model and provide a deeper understanding of some well-known properties of the CIR model. Based on these fundamental results we construct a new short rate model with jumps, which extends the CIR model and still gives closed form expressions for bond options.
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Bibliographic InfoArticle provided by Springer in its journal Finance and Stochastics.
Volume (Year): 5 (2001)
Issue (Month): 3 ()
Note: received: June 2000, final version received: October 2000
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Web page: http://www.springerlink.com/content/101164/
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