Markovian short rates in a forward rate model with a general class of Lévy processes

Uwe Küchler and Eva Naumann

No 2003,6, SFB 373 Discussion Papers from Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes

Abstract: Short rates of interest are considered within in the term structure model of Eberlein-Raible [6] driven by a Lévy process. It is shown that they are Markovian if and only if the volatility function factorizes. This extends results of Caverhill [5] for the Wiener process and of Eberlein, Raible [6] for Lévy processes with a restricting property to the most general class of Lévy processes being possible within this model. As new examples compound Poisson processes and bilateral gamma processes are included, in particular variance gamma processes in the sense of Madan [14], Madan, Senata [15].

Keywords: term structure of interest rates; Markovian rates; Lévy processes; Eberlein-Raible-model; bilateral gamma processes; variance gamma processes (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:sfb373:20036

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