Affine Realizations for Levy Driven Interest Rate Models with Real-World Forward Rate Dynamics
AbstractWe investigate the existence of affine realizations for interest rate term structure models driven by Levy processes. Using as numeraire the growth optimal portfolio, we model the interest rate term structure under the real-world probability measure, and hence, we do not need the existence of an equivalent risk-neutral probability measure. Furthermore, we include finite dimensional external factors, thus admitting a stochastic volatility structure.
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Bibliographic InfoPaper provided by Quantitative Finance Research Centre, University of Technology, Sydney in its series Research Paper Series with number 289.
Date of creation: 01 Mar 2011
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Levy driven interest rate models; real-world forward rate dynamics; stochastic volatility; affine realizations;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-04-02 (All new papers)
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.:
- Nicola Bruti-Liberati & Christina Nikitopoulos-Sklibosios & Eckhard Platen, 2010. "Real-world jump-diffusion term structure models," Quantitative Finance, Taylor and Francis Journals, vol. 10(1), pages 23-37.
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