Analytic bond pricing for short rate dynamics evolving on matrix Lie groups

Nengli Lim and Nicolas Privault

Quantitative Finance, 2016, vol. 16, issue 1, 119-129

Abstract: We provide closed-form expressions for bond prices in interest rate models based on compact Lie groups. Our approach uses a Doob transform technique and PDE solutions by the Mathieu periodic functions. As a by-product, we derive formulas for bond option prices as well as new identities for the Laplace transform of periodic functionals of Brownian motion and Brownian diffusion processes.

Date: 2016
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Citations: View citations in EconPapers (3)

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DOI: 10.1080/14697688.2014.990497

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