Discrete-Time Models of Bond Pricing

David Backus, Silverio Foresi and Chris Telmer ()

No 6736, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We explore a variety of models and approaches to bond pricing, including those associated with Vasicek, Cox-Ingersoll-Ross, Ho and Lee, and Heath-Jarrow-Morton, as well as models with jumps, multiple factors, and stochastic volatility. We describe each model in a common theoretical framework and explain the reasoning underlying the choice of parameter values. Our framework has continuous state variables but discrete time, which we regard as a convenient middle ground between the stochastic calculus of high theory and the binomial models of classroom fame. In this setting, most of the models we examine are easily implemented on a spreadsheet.

JEL-codes: E43 G12 (search for similar items in EconPapers)
Date: 1998-09
New Economics Papers: this item is included in nep-cfn and nep-dge
Note: AP
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Citations: View citations in EconPapers (56)

Published as Jegadeesh, N. and B. Tuckman (eds.) Advanced Fixed Income Valuation Tools. Wiley, 2000.

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