Calibration and Pricing in a Multi-Factor Quadratic Gaussian Model
AbstractWe consider a two-country multi-factor quadratic Gaussian model and provide efficient formulas for the price of default free bonds and the calibration of the model to the default free discount term structure. We also provide approximations for the price of default free swaptions in such a model indicating the limitation of using an approach based on replacing certain martingales by their expectation.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Quantitative Finance Research Centre, University of Technology, Sydney in its series Research Paper Series with number 197.
Date of creation: 01 May 2007
Date of revision:
Contact details of provider:
Postal: PO Box 123, Broadway, NSW 2007, Australia
Phone: +61 2 9514 7777
Fax: +61 2 9514 7711
Web page: http://www.business.uts.edu.au/qfrc/index.html
More information through EDIRC
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Markus Leippold & Liuren Wu, 2002. "Design and Estimation of Quadratic Term Structure Models," Finance 0207014, EconWPA.
- Erik Schlögl, 2002.
"A multicurrency extension of the lognormal interest rate Market Models,"
Finance and Stochastics,
Springer, vol. 6(2), pages 173-196.
- Erik Schl?gl, 1999. "A Multicurrency Extension of the Lognormal Interest Rate Market Models," Research Paper Series 20, Quantitative Finance Research Centre, University of Technology, Sydney.
- Amin, Kaushik I. & Jarrow, Robert A., 1991. "Pricing foreign currency options under stochastic interest rates," Journal of International Money and Finance, Elsevier, vol. 10(3), pages 310-329, September.
- Heath, David & Jarrow, Robert & Morton, Andrew, 1992. "Bond Pricing and the Term Structure of Interest Rates: A New Methodology for Contingent Claims Valuation," Econometrica, Econometric Society, vol. 60(1), pages 77-105, January.
- Dong-Hyun Ahn & Robert F. Dittmar, 2002. "Quadratic Term Structure Models: Theory and Evidence," Review of Financial Studies, Society for Financial Studies, vol. 15(1), pages 243-288, March.
- Antoine Frachot, 1995. "Factor Models Of Domestic And Foreign Interest Rates With Stochastic Volatilities," Mathematical Finance, Wiley Blackwell, vol. 5(2), pages 167-185.
- Farshid Jamshidian, 1993. "Option and Futures Evaluation With Deterministic Volatilities," Mathematical Finance, Wiley Blackwell, vol. 3(2), pages 149-159.
- Leippold, Markus & Wu, Liuren, 2002.
"Asset Pricing under the Quadratic Class,"
Journal of Financial and Quantitative Analysis,
Cambridge University Press, vol. 37(02), pages 271-295, June.
- Kaushik I. Amin & Robert A. Jarrow, 1992. "Pricing Options On Risky Assets In A Stochastic Interest Rate Economy," Mathematical Finance, Wiley Blackwell, vol. 2(4), pages 217-237.
- Li Chen & Damir Filipović & H. Vincent Poor, 2004. "Quadratic Term Structure Models For Risk-Free And Defaultable Rates," Mathematical Finance, Wiley Blackwell, vol. 14(4), pages 515-536.
- Farshid Jamshidian, 1997. "LIBOR and swap market models and measures (*)," Finance and Stochastics, Springer, vol. 1(4), pages 293-330.
- David F. Schrager & Antoon A. J. Pelsser, 2006. "Pricing Swaptions And Coupon Bond Options In Affine Term Structure Models," Mathematical Finance, Wiley Blackwell, vol. 16(4), pages 673-694.
- Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "A Theory of the Term Structure of Interest Rates," Econometrica, Econometric Society, vol. 53(2), pages 385-407, March.
- Harrison, J. Michael & Pliska, Stanley R., 1981. "Martingales and stochastic integrals in the theory of continuous trading," Stochastic Processes and their Applications, Elsevier, vol. 11(3), pages 215-260, August.
- Chen, Ren-Raw & Cheng, Xiaolin & Fabozzi, Frank J. & Liu, Bo, 2008. "An Explicit, Multi-Factor Credit Default Swap Pricing Model with Correlated Factors," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 43(01), pages 123-160, March.
- Samson Assefa, 2007. "Pricing of Defaultable Securities in a Multi-Factor Quadratic Gaussian Model," Research Paper Series 202, Quantitative Finance Research Centre, University of Technology, Sydney.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Duncan Ford).
If references are entirely missing, you can add them using this form.