IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

A Class of Jump-Diffusion Bond Pricing Models within the HJM Framework

This paper considers a class of term structure models that is a parameterisation of the Shirakawa (1991) extension of the Heath, Jarrow and Morton (1992) model to the case of jump-diffusions. We consider specific forward rate volatility structures that incorporate state dependent Wiener volatility functions and time dependent Poisson volatility functions. Within this framework, we discuss the Markovianisation issue, and obtain the corresponding affine term structure of interest rates. As a result we are able to obtain a broad tractable class of jump-diffusion term structure models. We relate our approach to the existing class of jump-diffusion term structure models whose starting point is a jump-diffusion process for the spot rate. In particular we obtain natural jump-diffusion versions of the Hull and White (1990, 1994) one-factor and two-factor models and the Ritchken and Sankarasubramanian (1995) model within the HJM framework. We also give some numerical simulations to gauge the effect of the jump-component on yield curves and the implications of various volatility specifications for the spot rate distributions.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.business.uts.edu.au/qfrc/research/research_papers/rp132.pdf
Download Restriction: no

Paper provided by Quantitative Finance Research Centre, University of Technology, Sydney in its series Research Paper Series with number 132.

as
in new window

Length: 37
Date of creation: 01 Sep 2004
Date of revision:
Handle: RePEc:uts:rpaper:132
Contact details of provider: Postal: PO Box 123, Broadway, NSW 2007, Australia
Phone: +61 2 9514 7777
Fax: +61 2 9514 7711
Web page: http://www.qfrc.uts.edu.au/

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Carl Chiarella & Oh Kwon, 2003. "Finite Dimensional Affine Realisations of HJM Models in Terms of Forward Rates and Yields," Review of Derivatives Research, Springer, vol. 6(2), pages 129-155, May.
  2. Carl Chiarella & Thuy‐Duong Tô, 2003. "The jump component of the volatility structure of interest rate futures markets: An international comparison," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 23(12), pages 1125-1158, December.
  3. Carl Chiarella & Nadima El-Hassan, 1996. "A Preference Free Partial Differential Equation for the Term Structure of Interest Rates," Working Paper Series 63, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
  4. Hiroshi Shirakawa, 1991. "Interest Rate Option Pricing With Poisson-Gaussian Forward Rate Curve Processes," Mathematical Finance, Wiley Blackwell, vol. 1(4), pages 77-94.
  5. Björk, Tomas & Gombani, Andrea, 1997. "Minimal Realizations of Forward Rates," SSE/EFI Working Paper Series in Economics and Finance 182, Stockholm School of Economics.
  6. Carl Chiarella & Oh Kang Kwon, 2001. "Forward rate dependent Markovian transformations of the Heath-Jarrow-Morton term structure model," Finance and Stochastics, Springer, vol. 5(2), pages 237-257.
  7. Christina Nikitopoulos-Sklibosios, 2005. "A Class of Markovian Models for the Term Structure of Interest Rates Under Jump-Diffusions," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 6.
  8. Tomas Björk & Yuri Kabanov & Wolfgang Runggaldier, 1997. "Bond Market Structure in the Presence of Marked Point Processes," Mathematical Finance, Wiley Blackwell, vol. 7(2), pages 211-239.
  9. Ram Bhar & Carl Chiarella, 1995. "Transformation of Heath-Jarrow-Morton Models to Markovian Systems," Working Paper Series 53, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
  10. George Chacko, 2002. "Pricing Interest Rate Derivatives: A General Approach," Review of Financial Studies, Society for Financial Studies, vol. 15(1), pages 195-241, March.
  11. Heath, David & Jarrow, Robert & Morton, Andrew, 1992. "Bond Pricing and the Term Structure of Interest Rates: A New Methodology for Contingent Claims Valuation," Econometrica, Econometric Society, vol. 60(1), pages 77-105, January.
  12. Inui, Koji & Kijima, Masaaki, 1998. "A Markovian Framework in Multi-Factor Heath-Jarrow-Morton Models," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 33(03), pages 423-440, September.
  13. Paul Glasserman & S. G. Kou, 2003. "The Term Structure of Simple Forward Rates with Jump Risk," Mathematical Finance, Wiley Blackwell, vol. 13(3), pages 383-410.
  14. Hull, John & White, Alan, 1990. "Pricing Interest-Rate-Derivative Securities," Review of Financial Studies, Society for Financial Studies, vol. 3(4), pages 573-92.
  15. Das, Sanjiv R., 2002. "The surprise element: jumps in interest rates," Journal of Econometrics, Elsevier, vol. 106(1), pages 27-65, January.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:uts:rpaper:132. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Duncan Ford)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.