An interest rate model with a Markovian mean reverting level
Date
2002
Authors
Elliott, R.
Mamon, R.
Editors
Advisors
Journal Title
Journal ISSN
Volume Title
Type:
Journal article
Citation
Quantitative Finance, 2002; 2(6):454-458
Statement of Responsibility
Robert J Elliott and Rogemar S Mamon
Conference Name
Abstract
A two-factor Vasicek model, where the mean reversion level changes according to a continuous time finite state Markov chain, is considered. This model could capture the behaviour of monetary authorities who normally set a reference rate which changes from time to time. We derive the term structure via the analytic expression of the bond price that involves a fundamental matrix. The validity of the bond price closed form solution is verified via the forward rate dynamics.
School/Discipline
Dissertation Note
Provenance
Description
© 2002 IOP Publishing Ltd