A COMPLETE YIELD CURVE DESCRIPTION OF A MARKOV INTEREST RATE MODEL

Robert J. Elliott () and Rogemar S. Mamon ()
Additional contact information
Robert J. Elliott: Haskayne School of Business, University of Calgary, Calgary, Alberta, Canada, T2N 1N4, Canada
Rogemar S. Mamon: Department of Statistics and Actuarial Science, University of Waterloo, Waterloo, Ontario, Canada, N2L 3G1, Canada

International Journal of Theoretical and Applied Finance (IJTAF), 2003, vol. 06, issue 04, 317-326

Abstract: This paper aims to present a complete term structure characterisation of a Markov interest rate model. To attain this objective, we first give a proof that establishes the Unbiased Expectation Hypothesis (UEH) via the forward measure. The UEH result is then employed, which considerably facilitates the calculation of an explicit analytic expression for the forward ratef(t, T). The specification of the bond priceP(t, T), yield rateY(t, T)andf(t, T)gives a complete set of yield curve descriptions for an interest rate market where the short rateris a function of a continuous time Markov chain.

Keywords: Markov chain; semi-martingale; forward measure; unbiased expectation hypothesis (search for similar items in EconPapers)
Date: 2003
References: View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0219024903001852
Access to full text is restricted to subscribers

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:wsi:ijtafx:v:06:y:2003:i:04:n:s0219024903001852

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0219024903001852

Access Statistics for this article

International Journal of Theoretical and Applied Finance (IJTAF) is currently edited by L P Hughston

More articles in International Journal of Theoretical and Applied Finance (IJTAF) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().