RT info:eu-repo/semantics/article
T1 The risk-neutral stochastic volatility in interest rate models with jump–diffusion processes
A1 Gómez del Valle, María Lourdes
A1 Martínez Rodríguez, Julia
K1 Economía y empresa
AB In this paper, we consider a two-factor interest rate model with stochastic volatility and we propose that the interest rate follows a jump-di ffusion process. The estimation of the market price of risk is an open question in two-factor jump-di ffusion term structure models when a closed-form solution is not known. We prove some results that relate the slope of the yield curves, interest rates and volatility with the functions of the processes under the risk-neutral measure. These relationsallow us to estimate all the functions with the bond prices observed in the markets. Moreover, the market prices of risk, which are unobservable, can be easily obtained. Then, we can solve the pricing problem. An application to US Treasury Bill data is illustrated and a comparison with a one-factor model is showed. Finally, the e ect of the change of measure on the jump intensity and jump distribution is analyzed.
PB Elsevier
YR 2019
FD 2019
LK http://uvadoc.uva.es/handle/10324/32346
UL http://uvadoc.uva.es/handle/10324/32346
LA eng
NO Journal of Computational and Applied Mathematics, vol. 347, p. 49–61.
NO Producción Científica
DS UVaDOC
RD 22-nov-2024