Stable distributions and the term structure of interest rates (Q699420)

The authors start with the classical short rate model of termstructures of interest rates and introduce a random time substitution given by an \(\alpha\)-stable process. Specializing the coefficients of the short rate differential equation to a Dothan-like model they present a pricing formula for zero coupon bonds and use it to describe an estimation procedure for \(\alpha\) and other parameters of the underlying stable process from data sets. Some properties of stable laws and processes are summarized at the beginning. The paper is a short preliminary report (without any details) of a more extended work by the authors, being in progress.