On generalized CIR equations

MaRDI QIDQ6314529zbMATH OpenFDO

Authors Michał Barski, Jerzy Zabczyk

Publication date 24 February 2019

Mathematics Subject Classification ID

Random fields (60G60) Microeconomic theory (price theory and economic markets) (91B24) Stochastic models in economics (91B70) Stochastic integral equations (60H20)

Abstract: The paper is concerned with stochastic equations for the short rate process $R$ ${\displaystyle }$ dR(t)=F(R(t))dt+G(R(t-))dZ(t), ${\displaystyle }$ in the affine model of the bond prices. The equation is driven by a L'evy martingale $Z$. It is shown that the discounted bond prices are local martingales if either $Z$ is a stable process of index $alphain(1,2]$,,$F(x)=ax+b,bgeq0$, $G(x)=c{x}^{1/alpha},c>0$ or $Z$ must be a L'evy martingale with positive jumps and trajectories of bounded variation, $F(x)=ax+b,bgeq0$ and G is a constant. The result generalizes the well known Cox-Ingersoll-Ross result and extends the Vasicek result to non-negative short rates.

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