On Finite-dimensional Term Structure models

Thumbnail Image

Date

Authors

Journal Title

Journal ISSN

Volume Title

Publisher

Abstract

Description

In this paper we provide the characterization of all finite-dimensional Heath--Jarrow--Morton models that admit arbitrary initial yield curves. It is well known that affine term structure models with time-dependent coefficients (such as the Hull--White extension of the Vasicek short rate model) perfectly fit any initial term structure. We find that such affine models are in fact the only finite-factor term structure models with this property. We also show that there is usually an invariant singular set of initial yield curves where the affine term structure model becomes time-homogeneous. We also argue that other than functional dependent volatility structures -- such as local state dependent volatility structures -- cannot lead to finite-dimensional realizations. Finally, our geometric point of view is illustrated by several examples.

Keywords

Probability, Functional Analysis, 91B28, 91B26, 60H15

Citation

URI

http://salesiana.dossiersoluciones.com/handle/123456789/63171

Consulte el texto completo en el siguiente enlace:

https://arxiv.org/abs/math/0201204
 http://arxiv.org/abs/math/0201204

Collections

arXiv