On generalized CIR equations

arXiv1902.08976MaRDI QIDQ6314529FDOQ6314529

Authors: Michał Barski, Jerzy Zabczyk 

Publication date: 24 February 2019

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.

Mathematics Subject Classification ID

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

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