A General Characterization of Quadratic Term Structure Models
In this paper, we define a strongly regular quadratic Gaussian process to characterize quadratic term structure models (QTSMs) in a general Markov setting. The key of this definition is to keep the analytical tractability of QTSMs which has the quadratic term structure of the yield curve. In order to keep this property, under the regularity condition, we have proven that no jumps are allowed in the infinitesimal generator of the underlying state process. The coefficient functions defined in the quadratic Gaussian relationship can be decided by the multi-variate Riccati Equations with a unique admissible parameter set. Based on this result, we discuss the pricing problems of QTSMs under default-free and defaultable rates.
|Date of creation:||28 Nov 2002|
|Date of revision:|
|Note:||Type of Document - Tex; prepared on IBM PC - PC-TEX; to print on PostScript; pages: 40 . We never published this piece and now we would like to reduce our mailing and xerox cost by posting it.|
|Contact details of provider:|| Web page: http://econwpa.repec.org|
When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpfi:0211008. 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: (EconWPA)
If references are entirely missing, you can add them using this form.