Affine Short Rate Models

We give a complete characterization of affine term structure (ATS) models based on a general non-negative Markov short rate process. This applies to the classical Cox—Ingersoll—Ross (CIR) model but includes as well short rate processes with jumps. We provide a link to the theory of branching processes and show how CBI-processes naturally enter the field of term structure modelling. Using Markov semigroup theory we exploit the full structure behind an ATS and provide a deeper understanding of some well-known properties of the CIR model. As a byproduct we get that any conservative CBI-process is a semimartingale.

Presented at:
Seminar on Stochastic Analysis, Random Fields and Applications III, Centro Stefano Franscini, Ascona, Switzerland, September 1999

 Record created 2013-08-13, last modified 2018-01-28

External link:
Download fulltext
Rate this document:

Rate this document:
(Not yet reviewed)