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Stochastic flows and the forward measure

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Author Info
Robert J. Elliott () (Department of Mathematical Sciences, University of Alberta, Edmonton, Alberta, Canada T6G 2G1)
John van der Hoek () (Department of Applied Mathematics, University of Adelaide, Adelaide, South Australia 5005 Mauscript)
Abstract

Stochastic flows and their Jacobians are used to show why, when the short rate process is described by Gaussian dynamics, (as in the Vasicek or Hull-White models), or square root, affine (Bessel) processes, (as in the Cox-Ingersoll-Ross, or Duffie-Kan models), the bond price is an exponential affine function. Using the forward measure the bond price is obtained by solving a linear ordinary differential equation; Ricatti equations are not required.

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Publisher Info
Article provided by Springer in its journal Finance and Stochastics.

Volume (Year): 5 (2001)
Issue (Month): 4 ()
Pages: 511-525
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:spr:finsto:v:5:y:2001:i:4:p:511-525

Note: received: February 1999; final version received: October 2000
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Related research
Keywords: Forward measure; exponential affine; bond pricing;

Find related papers by JEL classification:
G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
C63 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computational Techniques

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This page was last updated on 2009-12-22.

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