Phase transition in a log-normal Markov functional model

DOI10.1063/1.3526679MaRDI QIDQ5256183zbMATH OpenOpenAlexFDO

Authors Dan Pirjol

Publication date 22 June 2015

Published in Journal of Mathematical Physics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1007.0691

Mathematics Subject Classification ID

Discrete-time Markov processes on general state spaces (60J05) Phase transitions (general) in equilibrium statistical mechanics (82B26) Critical phenomena in equilibrium statistical mechanics (82B27) Stochastic methods applied to problems in equilibrium statistical mechanics (82B31)

Abstract: We derive the exact solution of a one-dimensional Markov functional model with log-normally distributed interest rates in discrete time. The model is shown to have two distinct limiting states, corresponding to small and asymptotically large volatilities, respectively. These volatility regimes are separated by a phase transition at some critical value of the volatility. We investigate the conditions under which this phase transition occurs, and show that it is related to the position of the zeros of an appropriately defined generating function in the complex plane, in analogy with the Lee-Yang theory of the phase transitions in condensed matter physics.

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Cites work

• Arbitrage-free discretization of lognormal forward Libor and swap rate models
• scientific article; zbMATH DE number 1454625 (Why is no real title available?)
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Cited in

(6)

• Emergence of heavy-tailed distributions in a random multiplicative model driven by a Gaussian stochastic process
• Explosive behavior in a log-normal interest rate model
• Explosive behavior in the Black-Derman-Toy model
• Hogan–Weintraub singularity and explosive behaviour in the Black–Derman–Toy model
• A Unified Framework for Estimation in Lognormal Models
• Inequality of chances as a symmetry phase transition

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