On Markovian short rates in term structure models driven by jump-diffusion processes

Gapeev Pavel V. and Küchler Uwe

Statistics & Risk Modeling, 2006, vol. 24, issue 2, 255-271

Abstract: In this paper a bond market model and the related term structure of interest rates are studied where prices of zero coupon bonds are driven by a jump-diffusion process. A criterion is derived on the deterministic forward rate volatilities underwhich the short rate process isMarkovian. In the case that the volatilities depend on the short rate sufficient conditions are presented for the existence of a finite-dimensional Markovian realization of the term structure model.

Keywords: Bond market model; term structure of interest rates; Heath–Jarrow–Morton model; martingale measure; jump-diffusion process (search for similar items in EconPapers)
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:bpj:strimo:v:24:y:2006:i:2:p:17:n:3

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DOI: 10.1524/stnd.2006.24.2.255

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