Finite dimensional Markovian realizations for stochastic volatility forward rate models

Arbeitspapier

We consider forward rate rate models of HJM type, as well as more general infinite dimensional SDEs, where the volatility/diffusion term is stochastic in the sense of being driven by a separate hidden Markov process. Within this framework we use the previously developed Hilbert space realization theory in order provide general necessary and sufficent conditions for the existence of a finite dimensional Markovian realizations for the stochastic volatility models. We illustrate the theory by analyzing a number of concrete examples.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: SSE/EFI Working Paper Series in Economics and Finance ; No. 498

Classification and Topics

• Classification: Wirtschaft ; Interest Rates: Determination, Term Structure, and Effects ; Contingent Pricing; Futures Pricing; option pricing
• Subject: HJM models ; stochastic volatility ; factor models ; forward rates ; state space models ; Markovian realizations ; infinite dimensional SDEs

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Björk, Tomas ; Landén, Camilla ; Svensson, Lars
• Event: Veröffentlichung
• (who): Stockholm School of Economics, The Economic Research Institute (EFI)
• (where): Stockholm
• (when): 2002

Further information

• Handle: http://hdl.handle.net/10419/56361
• Last update: 10.03.2025, 11:44 AM CET