Real-world jump-diffusion term structure models

Bruti-Liberati, N; Nikitopoulos-Sklibosios, C; Platen, E

Real-world jump-diffusion term structure models

Bruti-Liberati, N Nikitopoulos-Sklibosios, C

Platen, E

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Publication Type:: Journal Article
Citation:: Quantitative Finance, 2010, 10 (1), pp. 23 - 37
Issue Date:: 2010-01-01

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Field	Value	Language
dc.contributor.author	Bruti-Liberati, N	en_US
dc.contributor.author	Nikitopoulos-Sklibosios, C https://orcid.org/0000-0002-5879-3731	en_US
dc.contributor.author	Platen, E https://orcid.org/0000-0003-4595-3123	en_US
dc.date.issued	2010-01-01	en_US
dc.identifier.citation	Quantitative Finance, 2010, 10 (1), pp. 23 - 37	en_US
dc.identifier.issn	1469-7688	en_US
dc.identifier.uri	http://hdl.handle.net/10453/13966
dc.description.abstract	This paper considers interest rate term structure models in a market attracting both continuous and discrete types of uncertainty. The event-driven noise is modelled by a Poisson random measure. Using as numeraire the growth optimal portfolio, interest rate derivatives are priced under the real-world probability measure. In particular, the real-world dynamics of the forward rates are derived and, for specific volatility structures, finite-dimensional Markovian representations are obtained. Furthermore, allowing for a stochastic short rate in a non-Markovian setting, a class of tractable affine term structures is derived where an equivalent risk-neutral probability measure may not exist. © 2010 Taylor & Francis.	en_US
dc.relation.ispartof	Quantitative Finance	en_US
dc.relation.isbasedon	10.1080/14697680902814233	en_US
dc.subject.classification	Finance	en_US
dc.title	Real-world jump-diffusion term structure models	en_US
dc.type	Journal Article
utslib.citation.volume	1	en_US
utslib.citation.volume	10	en_US
utslib.for	150201 Finance	en_US
utslib.for	01 Mathematical Sciences	en_US
utslib.for	14 Economics	en_US
utslib.for	15 Commerce, Management, Tourism and Services	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Finance Discipline
pubs.organisational-group	/University of Technology Sydney/Faculty of Science
pubs.organisational-group	/University of Technology Sydney/Faculty of Science/School of Mathematical and Physical Sciences
pubs.organisational-group	/University of Technology Sydney/Strength - QFRC - Quantitative Finance Research Centre
utslib.copyright.status	closed_access
pubs.issue	1	en_US
pubs.publication-status	Published	en_US
pubs.volume	10	en_US

Abstract:

This paper considers interest rate term structure models in a market attracting both continuous and discrete types of uncertainty. The event-driven noise is modelled by a Poisson random measure. Using as numeraire the growth optimal portfolio, interest rate derivatives are priced under the real-world probability measure. In particular, the real-world dynamics of the forward rates are derived and, for specific volatility structures, finite-dimensional Markovian representations are obtained. Furthermore, allowing for a stochastic short rate in a non-Markovian setting, a class of tractable affine term structures is derived where an equivalent risk-neutral probability measure may not exist. © 2010 Taylor & Francis.

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http://hdl.handle.net/10453/13966