Asset Pricing Under The Quadratic Class
AbstractWe identify and characterize a class of term structure models where bond yields are quadratic functions of the state vector. We label this class the quadratic class and aim to lay a solid theoretical foundation for its future empirical application. We consider asset pricing in general and derivative pricing in particular under the quadratic class. We provide two general transform methods in pricing a wide variety of fixed income derivatives in closed or semiclosed form. We further illustrate how the quadratic model and the transform methods can be applied to more general settings.
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Bibliographic InfoPaper provided by EconWPA in its series Finance with number 0207015.
Length: 46 pages
Date of creation: 30 Aug 2002
Date of revision:
Note: Type of Document - pdf; prepared on MikTex; to print on postscript; pages: 46 ; figures: included. produced via dvipdfm
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quadratic class; interest rates; term structure models; state price density; Markov process.;
Other versions of this item:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
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