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The Cheyette Model Class

In: Interest Rate Derivatives

Author

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  • Ingo Beyna

    (Centre for Practical Quantitative Finance)

Abstract

The HJM framework is well-established in academia and practise to price and hedge interest rate derivatives. Imposing a special time dependent structure on the forward rate volatility function leads directly to the class of Cheyette models. In contrast to the general HJM model, the dynamics are Markovian, which allows the application of standard econometric valuation concepts. Finally, we distinguish this approach from alternative settings discussed in literature.

Suggested Citation

  • Ingo Beyna, 2013. "The Cheyette Model Class," Lecture Notes in Economics and Mathematical Systems, in: Interest Rate Derivatives, edition 127, chapter 0, pages 3-15, Springer.
    • Handle: RePEc:spr:lnechp:978-3-642-34925-6_2
    DOI: 10.1007/978-3-642-34925-6_2
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    References listed on IDEAS

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    1. R. Bhar & C. Chiarella, 1997. "Transformation of Heath?Jarrow?Morton models to Markovian systems," The European Journal of Finance, Taylor & Francis Journals, vol. 3(1), pages 1-26, March.
    2. David Heath & Robert Jarrow & Andrew Morton, 2008. "Bond Pricing And The Term Structure Of Interest Rates: A New Methodology For Contingent Claims Valuation," World Scientific Book Chapters, in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 13, pages 277-305, World Scientific Publishing Co. Pte. Ltd..
    3. Schwartz, Eduardo S, 1997. "The Stochastic Behavior of Commodity Prices: Implications for Valuation and Hedging," Journal of Finance, American Finance Association, vol. 52(3), pages 923-973, July.
    4. Miltersen, Kristian R. & Schwartz, Eduardo S., 1998. "Pricing of Options on Commodity Futures with Stochastic Term Structures of Convenience Yields and Interest Rates," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 33(1), pages 33-59, March.
    5. Ho, Thomas S Y & Lee, Sang-bin, 1986. "Term Structure Movements and Pricing Interest Rate Contingent Claims," Journal of Finance, American Finance Association, vol. 41(5), pages 1011-1029, December.
    6. Vasicek, Oldrich, 1977. "An equilibrium characterization of the term structure," Journal of Financial Economics, Elsevier, vol. 5(2), pages 177-188, November.
    7. Vasicek, Oldrich Alfonso, 1977. "Abstract: An Equilibrium Characterization of the Term Structure," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(4), pages 627-627, November.
    8. Hull, John & White, Alan, 1990. "Pricing Interest-Rate-Derivative Securities," The Review of Financial Studies, Society for Financial Studies, vol. 3(4), pages 573-592.
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