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|Title:||A complete yield curve description of a Markov interest rate model|
|Citation:||International Journal of Theoretical and Applied Finance, 2003; 6(4):317-326|
|Publisher:||World Scientific Publishing Co Pte Ltd|
|Robert J. Elliott; Rogemar S. Mamon|
|Abstract:||This paper aims to present a complete term structure characterisation of a Markov interest rate model. To attain this objective, we first give a proof that establishes the Unbiased Expectation Hypothesis (UEH) via the forward measure. The UEH result is then employed, which considerably facilitates the calculation of an explicit analytic expression for the forward rate f(t, T). The specification of the bond price P(t, T), yield rate Y(t, T) and f(t, T) gives a complete set of yield curve descriptions for an interest rate market where the short rate r is a function of a continuous time Markov chain.|
|Keywords:||Markov chain; semi-martingale; forward measure; unbiased expectation hypothesis.|
|Description:||© World Scientific Publishing Company|
|Appears in Collections:||Applied Mathematics publications|
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