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Wiener Chaos and the Cox-Ingersoll-Ross model

Listed author(s):
  • M. R. Grasselli
  • T. R. Hurd
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    In this we paper we recast the Cox--Ingersoll--Ross model of interest rates into the chaotic representation recently introduced by Hughston and Rafailidis. Beginning with the ``squared Gaussian representation'' of the CIR model, we find a simple expression for the fundamental random variable X. By use of techniques from the theory of infinite dimensional Gaussian integration, we derive an explicit formula for the n-th term of the Wiener chaos expansion of the CIR model, for n=0,1,2,.... We then derive a new expression for the price of a zero coupon bond which reveals a connection between Gaussian measures and Ricatti differential equations.

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    Paper provided by in its series Papers with number math/0307197.

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    Date of creation: Jul 2003
    Publication status: Published in Proc. R. Soc. A (2005) 461, 459\^A?"479
    Handle: RePEc:arx:papers:math/0307197
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