Stochastic flows and the forward measure
Stochastic flows and their Jacobians are used to show why, when the short rate process is described by Gaussian dynamics, (as in the Vasicek or Hull-White models), or square root, affine (Bessel) processes, (as in the Cox-Ingersoll-Ross, or Duffie-Kan models), the bond price is an exponential affine function. Using the forward measure the bond price is obtained by solving a linear ordinary differential equation; Ricatti equations are not required.
Volume (Year): 5 (2001)
Issue (Month): 4 ()
|Note:||received: February 1999; final version received: October 2000|
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