Single factor models with Markovian spot interest rate: An analytical treatment (Q1397606)
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scientific article; zbMATH DE number 1960710
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| English | Single factor models with Markovian spot interest rate: An analytical treatment |
scientific article; zbMATH DE number 1960710 |
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Single factor models with Markovian spot interest rate: An analytical treatment (English)
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6 August 2003
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This paper provides an analytic characterization of the bond prices in the class of single-factor Heath-Jarrow-Morton models in which the spot interest rate is a Markov process and the volatility structure of zero coupon bond returns is stochastic; Jeffrey's (1995) constraint is satisfied. The characterization involves a well-defined Volterra integral equation of the first kind. Under the generalized Cox-Ingersoll-Ross volatility assumption, and with an arbitrary initial term structure, it is shown that the Volterra equation can be solved by perturbation methods.
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Heath-Jarrow-Morton model
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Cox-Ingersoll-Ross model
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Jeffrey constraint
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Volterra integral equations
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perturbation methods
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0.8014701008796692
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0.8014699220657349
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0.7989171743392944
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0.7919615507125854
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0.7909626960754395
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