Volatility structures of forward rates and the dynamics of the term structure: a multifactor case |
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Authors: | Wang Guilan |
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Institution: | (1) College of Mathematical Sciences, Wuhan University, 430072 Wuhan, China |
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Abstract: | For general volatility structures for forward rates, the evolution of interest rates may not be Markovian and the entire path
may be necessary to capture the dynamics of the term structure. This article identifies conditions on the volatility structure
of forward rates that permit the dynamics of the term structure to be represented by a finite-dimensional state variable Markov
process. In the deterministic volatility case, we interpret then-factor model as a sum ofn unidimensional models.
Wang Guilan: born in 1967, Ph. D. |
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Keywords: | term structure dynamics volatility of forward rates HJM models Markovian models of the term structure |
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