Alpha-CIR model with branching processes in sovereign interest rate modeling

DOI10.1007/S00780-017-0333-7zbMATH Open1378.91123arXiv1602.05541OpenAlexW4296979416MaRDI QIDQ2364536FDOQ2364536

Authors: Ying Jiao, Chunhua Ma, Simone Scotti 

Publication date: 21 July 2017

Published in: Finance and Stochastics (Search for Journal in Brave)

Abstract: We introduce a class of interest rate models, called the $alpha$-CIR model, which gives a natural extension of the standard CIR model by adopting the $alpha$-stable L{'e}vy process and preserving the branching property. This model allows to describe in a unified and parsimonious way several recent observations on the sovereign bond market such as the persistency of low interest rate together with the presence of large jumps at local extent. We emphasize on a general integral representation of the model by using random fields, with which we establish the link to the CBI processes and the affine models. Finally we analyze the jump behaviors and in particular the large jumps, and we provide numerical illustrations.

Full work available at URL: https://arxiv.org/abs/1602.05541

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zbMATH Keywords

Hawkes processaffine term structure modelsovereign bondCBI processlow interest rate\(\alpha\)-stable Lévy process

Mathematics Subject Classification ID

Processes with independent increments; Lévy processes (60G51) Point processes (e.g., Poisson, Cox, Hawkes processes) (60G55) Branching processes (Galton-Watson, birth-and-death, etc.) (60J80) Interest rates, asset pricing, etc. (stochastic models) (91G30)

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