What is the Natural Scale for a Lévy Process in Modelling Term Structure of Interest Rates?
This paper gives examples of explicit arbitrage-free term structure models with L\'evy jumps via state price density approach. By generalizing quadratic Gaussian models, it is found that the probability density function of a L\'evy process is a "natural" scale for the process to be the state variable of a market.
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Volume (Year): 13 (2006)
Issue (Month): 4 (December)
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