A Complete Stochastic Volatility Model in the HJM Framework
This paper considers a stochastic volatility version of the Heath, Jarrow and Morton (1992) term structure model. Market completeness is obtained by adapting the Hobson and Rogers (1998) complete stochastic volatility stock market model to the interest rate setting. Numerical simulation for a special case is used to compare the stochastic volatility model against the traditional Vasicek (1977) model.
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- 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.
- 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.
- 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.
- 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.
- David G. Hobson & L. C. G. Rogers, 1998. "Complete Models with Stochastic Volatility," Mathematical Finance, Wiley Blackwell, vol. 8(1), pages 27-48.
- de Jong, Frank & Santa-Clara, Pedro, 1999. "The Dynamics of the Forward Interest Rate Curve: A Formulation with State Variables," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 34(01), pages 131-157, March.
- Andrew Carverhill, 1994. "When Is The Short Rate Markovian?," Mathematical Finance, Wiley Blackwell, vol. 4(4), pages 305-312.
- Carl Chiarella & Oh-Kang Kwon, 2000. "A Class of Heath-Jarrow-Morton Term Structure Models with Stochastic Volatility," Research Paper Series 34, Quantitative Finance Research Centre, University of Technology, Sydney.
- Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "An Intertemporal General Equilibrium Model of Asset Prices," Econometrica, Econometric Society, vol. 53(2), pages 363-84, March.
- 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.
- 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.
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