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Properties of the Cox–Ingersoll–Ross Interest Rate Processes with Two-sided Reflections

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  • Liu Chang
  • Shouting Chen
  • Ailin Zhu

Abstract

In recent years, reflected diffusion processes have played an important role in mathematical finance because of the existence of the constraint policies to special economic regime, such as a storage system, the exchange rate target-zone dynamics, barrier options, and so on. We are to propose a class of Cox–Ingersoll–Ross interest rate processes which has double sided reflected barriers so that the central bank can constrain the interest rate to fluctuate within a pre-specified zone. In this paper, we are mainly interested in the stationary distribution and first hitting times about the reflected Cox–Ingersoll–Ross interest rate processes. Therefore, we will supply an explicit expression of the stationary distribution and some related analytic formulas of first passage times.

Suggested Citation

  • Liu Chang & Shouting Chen & Ailin Zhu, 2015. "Properties of the Cox–Ingersoll–Ross Interest Rate Processes with Two-sided Reflections," Communications in Statistics - Theory and Methods, Taylor & Francis Journals, vol. 44(4), pages 657-670, February.
    • Handle: RePEc:taf:lstaxx:v:44:y:2015:i:4:p:657-670
    DOI: 10.1080/03610926.2013.813043
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