A Class of Heath-Jarrow-Morton Term Structure Models with Stochastic Volatility
This paper considers a class of Heath-Jarrow-Morton term structure models with stochastic volatility. These models admit transformations to Markovian systems, and consequently lend themselves to well-established solution techniques for the bond and bond option prices. Solutions for certain special cases are obtained, and compared against their non-stochastic counterparts.
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- 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.
- Carl Chiarella & Oh-Kang Kwon, 1999.
"Forward Rate Dependent Markovian Transformations of the Heath-Jarrow-Morton Term Structure Model,"
Research Paper Series
5, Quantitative Finance Research Centre, University of Technology, Sydney.
- 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.
- Alan Brace & Marek Musiela, 1994. "A Multifactor Gauss Markov Implementation Of Heath, Jarrow, And Morton," Mathematical Finance, Wiley Blackwell, vol. 4(3), pages 259-283.
- R. Bhar & C. Chiarella, 1997.
"Transformation of Heath?Jarrow?Morton models to Markovian systems,"
The European Journal of Finance,
Taylor & Francis Journals, vol. 3(1), pages 1-26.
- 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.
- Ram Bhar & Carl Chiarella & Nadima El-Hassan & Xiaosu Zheng, 2000. "The Reduction of Forward Rate Dependent Volatility HJM Models to Markovian Form: Pricing European Bond Option," Research Paper Series 36, Quantitative Finance Research Centre, University of Technology, Sydney.
- Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
- Hull, John C & White, Alan D, 1987. " The Pricing of Options on Assets with Stochastic Volatilities," Journal of Finance, American Finance Association, vol. 42(2), pages 281-300, June.
- 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.
- Peter Ritchken & L. Sankarasubramanian, 1995. "Volatility Structures Of Forward Rates And The Dynamics Of The Term Structure," Mathematical Finance, Wiley Blackwell, vol. 5(1), pages 55-72.
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