A square root interest rate model fitting discrete initial term structure data
This paper presents one-factor and multifactor versions of a term structure model in which the factor dynamics are given by Cox/Ingersoll/Ross (CIR) type 'square root' diffusions with piece wise constant parameters. The model is fitted to initial term structures given by a finite number of data points, interpolating endogenously. Closed form and near closed form solutions for a large class of fixed income derivatives are derived in terms of a compound noncentral chi-square distribution. An implementation of the model is discussed where the initial term structure of volatility is fitted via cap prices.
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Volume (Year): 7 (2000)
Issue (Month): 3 ()
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References listed on IDEAS
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- John C. Cox & Jonathan E. Ingersoll Jr. & Stephen A. Ross, 2005.
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World Scientific Publishing Co. Pte. Ltd..
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- F. Jamshidian, 1995. "A simple class of square-root interest-rate models," Applied Mathematical Finance, Taylor & Francis Journals, vol. 2(1), pages 61-72. Full references (including those not matched with items on IDEAS)
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