Additional Analytical Approximations Of The Term Structure And Distributional Assumptions For Jump Diffusion Processes
Download Additional Analytical Approximations Of The Term Structure And Distributional Assumptions For Jump Diffusion Processes PDF/ePub or read online books in Mobi eBooks. Click Download or Read Online button to get Additional Analytical Approximations Of The Term Structure And Distributional Assumptions For Jump Diffusion Processes book now. This website allows unlimited access to, at the time of writing, more than 1.5 million titles, including hundreds of thousands of titles in various foreign languages.
Additional Analytical Approximations of the Term Structure and Distributional Assumptions for Jump-Diffusion Processes
Affine term structure models in which the short rate follows a jump-diffusion process are difficult to solve. Without analytical answers to the partial difference differential equation (PDDE) for bond prices implied by jump-diffusion processes, one must find a numerical solution to the PDDE or exactly solve an approximate PDDE. Although the literature focuses on a single linearization technique to estimate the PDDE, this article outlines alternative methods that seem to improve accuracy. Also, closed form solutions, numerical estimates, and closed form approximations of the PDDE each ultimately depend on the presumed distribution of jump sizes, and this article explores a broader set of possible densities more consistent with intuition.
Pricing Interest-Rate Derivatives
Author: Markus Bouziane
language: en
Publisher: Springer Science & Business Media
Release Date: 2008-03-18
The author derives an efficient and accurate pricing tool for interest-rate derivatives within a Fourier-transform based pricing approach, which is generally applicable to exponential-affine jump-diffusion models.
Jump-diffusion Processes and Affine Term Structure Models
Affine term structure models in which the short rate follows a jump-diffusion process are difficult to solve, and the parameters of such models are hard to estimate. Without analytical answers to the partial difference differential equation (PDDE) for bond prices implied by jump-diffusion processes, one must find a numerical solution to the PDDE or exactly solve an approximate PDDE. Although the literature focuses on a single linearization technique to estimate the PDDE, this paper outlines alternative methods that seem to improve accuracy. Also, closed-form solutions, numerical estimates, and closed-form approximations of the PDDE each ultimately depend on the presumed distribution of jump sizes, and this paper explores a broader set of possible densities that may be more consistent with intuition, including a bi-modal Gaussian mixture. GMM and MLE of one- and two-factor jump-diffusion models produce some evidence for jumps, but sensitivity analyses suggest sizeable confidence intervals around the parameters.