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Affine Models

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  • Christa Cuchiero
  • Damir Filipovic
  • Josef Teichmann

Abstract

Affine term structure models have gained significant attention in the finance literature, mainly due to their analytical tractability and statistical flexibility. The aim of this article is to present both theoretical foundations as well as empirical aspects of the affine model class. Starting from the original one-factor short-rate models of Vasi\v{c}ek and Cox \emph{et al,} we provide an overview of the properties of regular affine processes and explain their relationship to affine term structure models. Methods for securities pricing and for parameter estimation are also discussed, demonstrating how the analytical tractability of affine models can be exploited for practical purposes.

Suggested Citation

  • Christa Cuchiero & Damir Filipovic & Josef Teichmann, 2008. "Affine Models," Papers 0809.1985, arXiv.org, revised Oct 2008.
  • Handle: RePEc:arx:papers:0809.1985
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    References listed on IDEAS

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    1. Vasicek, Oldrich, 1977. "An equilibrium characterization of the term structure," Journal of Financial Economics, Elsevier, vol. 5(2), pages 177-188, November.
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