Markovian spot rate dynamics with stochastic volatility structures

K. T. Au, A. B. Sim and D. C. Thurston

Applied Mathematical Finance, 1997, vol. 4, issue 2, 101-108

Abstract: Recent studies of bond pricing dynamics and stochastic term structure models have focused on Markovian spot rate processes with deterministic volatilities. In this paper we provide and extension to allow for stochastic volatility functions and investigate conditions under which the dynamics of the spot rate is a Markov process.

Keywords: Markovian; bond pricing; Heath; Jarrow; Morton; stochastic volatility (search for similar items in EconPapers)
Date: 1997
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DOI: 10.1080/13504869700000002

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