Real-world forward rate dynamics with affine realizations
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Publication:3448331
Abstract: We investigate the existence of affine realizations for L'{e}vy driven interest rate term structure models under the real-world probability measure, which so far has only been studied under an assumed risk-neutral probability measure. For models driven by Wiener processes, all results obtained under the risk-neutral approach concerning the existence of affine realizations are transferred to the general case. A similar result holds true for models driven by compound Poisson processes with finite jump size distributions. However, in the presence of jumps with infinite activity we obtain severe restrictions on the structure of the market price of risk; typically, it must even be constant.
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Cited in
(6)- Affine realizations with affine state processes for stochastic partial differential equations
- Libor market model under the real-world measure
- Existence of affine realizations for Lévy term structure models
- An alternative approach on the existence of affine realizations for HJM term structure models.
- Invariance of closed convex cones for stochastic partial differential equations
- Real-world jump-diffusion term structure models
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