Affine Term Structure Models

Patrick Cheridito, Damir Filipovic and Robert L. Kimmel
Additional contact information
Patrick Cheridito: Princeton U
Damir Filipovic: U of Munich
Robert L. Kimmel: Ohio State U

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: Dai and Singleton (2000) study a class of term structure models for interest rates that specify the instantaneous interest rate as an affine combination of the components of an N-dimensional affine diffusion process. Observable quantities of such models are invariant under regular affine transformations of the underlying diffusion process. And in their canonical form, the models in Dai and Singleton (2000) are based on diffusion processes with diagonal diffusion matrices. This motivates the following question: Can the diffusion matrix of an affine diffusion process always be diagonalized by means of a regular affine transformation? We show that if the state space of the diffusion is of the form D = Rm+ x RN - m for integers 0 ? m? N satisfying m ? 1 or m ? N - 1, then there exists a regular affine transformation of D onto itself that diagonalizes the diffusion matrix. On the other hand, we provide examples of affine diffusion processes with state space R2+ x R2 whose diffusion matrices cannot be diagonalized through regular affine transformation.

Date: 2006-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.cob.ohio-state.edu/fin/dice/papers/2007/2007-2.pdf
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.cob.ohio-state.edu/fin/dice/papers/2007/2007-2.pdf [301 Moved Permanently]--> https://www.cob.ohio-state.edu/fin/dice/papers/2007/2007-2.pdf [301 Moved Permanently]--> https://fisher.osu.edu/fin/dice/papers/2007/2007-2.pdf)

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:ecl:ohidic:2007-2

Access Statistics for this paper

More papers in Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics Contact information at EDIRC.
Bibliographic data for series maintained by ().