On Markovian Short Rates in Term Structure Models Driven by Jump-Diffusion Processes

Pavel V. Gapeev and Uwe Küchler

No 2003,44, SFB 373 Discussion Papers from Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes

Abstract: We study a bond market model and related term structure of interest rates where prices of zero coupon bonds are driven by a jump-diffusion process. We present a criterion on the deterministic forward rate volatilities under which the short rate process is Markovian and give sufficient conditions on the bond price volatility structure depending on the short rate for existing a finite-dimensional Markovian realization of the term structure model.

Date: 2003
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