Interest Rate Derivatives: Multi-Factor Models

Carl Chiarella, Xuezhong (Tony) He () and Christina Sklibosios Nikitopoulos
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Christina Sklibosios Nikitopoulos: University of Technology Sydney

Chapter Chapter 24 in Derivative Security Pricing, 2015, pp 505-528 from Springer

Abstract: Abstract Term structure models multi-factor In this chapter we develop a framework for term structure modelling that allows factors other than the instantaneous spot rate itself to influence the evolution of the term structure of interest rates. The framework allows for multi-factor generalisations of the Hull–White model as well as of the CIR model. First we present a two-factor extension of the Hull–White model. Then we develop a general multi-factor term structure model and the corresponding bond option pricing model. Finally as a specific application, we consider the so called Duffie–Kan affine class of term structure models, which is widely applied in practice.

Keywords: Option Price; Wiener Process; Bond Price; Term Structure Model; Hedge Portfolio (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:spr:dymchp:978-3-662-45906-5_24

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DOI: 10.1007/978-3-662-45906-5_24

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