Markovian short rates in a forward rate model with a general class of Lévy processes
AbstractShort rates of interest are considered within in the term structure model of Eberlein-Raible  driven by a Lévy process. It is shown that they are Markovian if and only if the volatility function factorizes. This extends results of Caverhill  for the Wiener process and of Eberlein, Raible  for Lévy processes with a restricting property to the most general class of Lévy processes being possible within this model. As new examples compound Poisson processes and bilateral gamma processes are included, in particular variance gamma processes in the sense of Madan , Madan, Senata . --
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Bibliographic InfoPaper provided by Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes in its series SFB 373 Discussion Papers with number 2003,6.
Date of creation: 2003
Date of revision:
term structure of interest rates; Markovian rates; Lévy processes; Eberlein-Raible-model; bilateral gamma processes; variance gamma processes;
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Working Paper Series, Finance Discipline Group, UTS Business School, University of Technology, Sydney
53, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
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