Alpha-CIR model with branching processes in sovereign interest rate modeling

Ying Jiao (), Chunhua Ma () and Simone Scotti ()
Additional contact information
Ying Jiao: Université Claude Bernard-Lyon 1
Chunhua Ma: Nankai University
Simone Scotti: Université Paris Diderot-Paris 7

Finance and Stochastics, 2017, vol. 21, issue 3, No 7, 789-813

Abstract: Abstract We introduce a class of interest rate models, called the α $\alpha$ -CIR model, which is a natural extension of the standard CIR model by adding a jump part driven by α $\alpha$ -stable Lévy processes with index α ∈ ( 1 , 2 ] $\alpha\in(1,2]$ . We deduce an explicit expression for the bond price by using the fact that the model belongs to the family of CBI and affine processes, and analyze the bond price and bond yield behaviors. The α $\alpha$ -CIR model allows us to describe in a unified and parsimonious way several recent observations on the sovereign bond market such as the persistency of low interest rates together with the presence of large jumps. Finally, we provide a thorough analysis of the jumps, and in particular the large jumps.

Keywords: α $\alpha$ -Stable Lévy process; CBI process; Affine term structure model; Low interest rate; Sovereign bond; 91G30; 91G80; 60G60 (search for similar items in EconPapers)
JEL-codes: C02 C65 E43 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

Downloads: (external link)
http://link.springer.com/10.1007/s00780-017-0333-7 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:finsto:v:21:y:2017:i:3:d:10.1007_s00780-017-0333-7

Ordering information: This journal article can be ordered from
http://www.springer. ... ance/journal/780/PS2

DOI: 10.1007/s00780-017-0333-7

Access Statistics for this article

Finance and Stochastics is currently edited by M. Schweizer

More articles in Finance and Stochastics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().