Asset Pricing Under The Quadratic Class

Markus Leippold () and Liuren Wu

Finance from University Library of Munich, Germany

Abstract: We identify and characterize a class of term structure models where bond yields are quadratic functions of the state vector. We label this class the quadratic class and aim to lay a solid theoretical foundation for its future empirical application. We consider asset pricing in general and derivative pricing in particular under the quadratic class. We provide two general transform methods in pricing a wide variety of fixed income derivatives in closed or semi­closed form. We further illustrate how the quadratic model and the transform methods can be applied to more general settings.

Keywords: quadratic class; interest rates; term structure models; state price density; Markov process. (search for similar items in EconPapers)
JEL-codes: E43 G12 G13 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2002-08-30
Note: Type of Document - pdf; prepared on MikTex; to print on postscript; pages: 46 ; figures: included. produced via dvipdfm
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Citations: View citations in EconPapers (122)

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Related works:
Journal Article: Asset Pricing under the Quadratic Class (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpfi:0207015

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