STATE SPACE DECOMPOSITION AND CLASSIFICATION OF TERM STRUCTURE SHAPES IN THE TWO-FACTOR VASICEK MODEL

DOI10.1142/S0219024923500139MaRDI QIDQ6182052zbMATH OpenOpenAlexFDO

Authors Martin Keller-Ressel

Publication date 23 January 2024

Published in International Journal of Theoretical and Applied Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/2303.13966

zbMATH Keywords

envelopeforward curveinterest ratesterm structureVašíček modelwinding numberyield curve

Mathematics Subject Classification ID

PDEs in connection with game theory, economics, social and behavioral sciences (35Q91) Interest rates, asset pricing, etc. (stochastic models) (91G30)

Abstract: Using the concept of envelopes we show how to divide the state space $R{R}^2$ of the two-factor Vasicek model into regions of identical term-structure shape. We develop a formula for determining the shapes utilizing winding numbers and give a nearly complete classification of the parameter space regarding the occurring shapes.

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Cites work

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Cited in

(1)

• Term structure shapes and their consistent dynamics in the Svensson family

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