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Interest Rate Derivatives: Multi-Factor Models

In: Derivative Security Pricing

Author

Listed:
  • Carl Chiarella

    (University of Technology Sydney)

  • Xue-Zhong He

    (University of Technology Sydney)

  • Christina Sklibosios Nikitopoulos

    (University of Technology Sydney)

Abstract

Term structure models multi-factor In this chapter we develop a framework for term structure modelling that allows factors other than the instantaneous spot rate itself to influence the evolution of the term structure of interest rates. The framework allows for multi-factor generalisations of the Hull–White model as well as of the CIR model. First we present a two-factor extension of the Hull–White model. Then we develop a general multi-factor term structure model and the corresponding bond option pricing model. Finally as a specific application, we consider the so called Duffie–Kan affine class of term structure models, which is widely applied in practice.

Suggested Citation

  • Carl Chiarella & Xue-Zhong He & Christina Sklibosios Nikitopoulos, 2015. "Interest Rate Derivatives: Multi-Factor Models," Dynamic Modeling and Econometrics in Economics and Finance, in: Derivative Security Pricing, edition 127, chapter 0, pages 505-528, Springer.
    • Handle: RePEc:spr:dymchp:978-3-662-45906-5_24
    DOI: 10.1007/978-3-662-45906-5_24
    as

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