Wolfgang Runggaldier
University of Padova
Interest rate derivatives pricing when the short rate is a
continuous
time finite state Markov process
Abstract:
In a joint paper with T. Björk and Yu.Kabanov in '97 we
considered
bond pricing in affine jumpdiffusion term structure models. In '02
D.Filipovic
and J.Zabczyk studied affine term structure models in discrete time.
Inspired by
these studies, here we consider an intermediate model where the short rate
evolves as a continuous time Markov chain with a finite number of states
and
study bond an interest rate derivatives pricing. The approach can be
extended
to the multifactor case thus allowing to consider also a defaultable
context.
Numerical results will be discussed as well
Joint work with Valentina Prezioso
