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 InfoPaper provided by Finance Discipline Group, UTS Business School, University of Technology, Sydney in its series Working Paper Series with number 53.
Length: 31 pages
Date of creation: 01 Dec 1995
Date of revision:
Publication status: Published as: Bhar, R. and Chiarella, C., 1997, "Transformation of Heath-Jarrow-Morton models to Markovian systems", The European Journal of Finance, 3(1), ,1-26.
Other versions of this item:
- 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.
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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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