Transformation of Heath?Jarrow?Morton models to Markovian systems
AbstractA class of volatility functions for the forward rate process is considered, which allows the bond price dynamics in the Heath-Jarrow-Morton (HJM) framework to be reduced to a finite-dimensional Markovian system. The use of this Markovian system in estimation of parameters of the volatility function via use of the Kalman filter is discussed. Further, the Markovian system allows the link to be drawn between the HJM and the Vasicek/Cox-Ingersoll-Ross (CIR) frameworks for modelling the term structure of interest rates.
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Bibliographic InfoArticle provided by Taylor and Francis Journals in its journal The European Journal of Finance.
Volume (Year): 3 (1997)
Issue (Month): 1 ()
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Other versions of this item:
- Ram Bhar & Carl Chiarella, 1995. "Transformation of Heath-Jarrow-Morton Models to Markovian Systems," Working Paper Series 53, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
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- Ram Bhar & Carl Chiarella, 1995. "The Estimation of the Heath-Jarrow-Morton Model by Use of Kalman Filtering Techniques," Working Paper Series 54, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
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- Hull, John & White, Alan, 1990. "Pricing Interest-Rate-Derivative Securities," Review of Financial Studies, Society for Financial Studies, vol. 3(4), pages 573-92.
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