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Quadratic term structure models in discrete time

Record type: Article

This paper extends the results on quadratic term structure models in continuous time to the discrete time setting. The continuous time setting can be seen as a special case of the discrete time one. Discrete time quadratic models have advantages over their continuous time counterparts as well as over discrete time affine models. Recursive closed form solutions for zero coupon bonds are provided even in the presence of multiple correlated underlying factors, time-dependent parameters, regime changes and “jumps” in the underlying factors. In particular regime changes and “jumps” cannot so easily be accommodated in continuous time quadratic models. Pricing bond options requires simple integration and model estimation does not require a restrictive choice of the market price of risk

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Citation

Realdon, Marco (2006) Quadratic term structure models in discrete time Finance Research Letters, 3, (4), pp. 277-289. (doi:10.1016/j.frl.2006.06.001).

More information

Published date: 2006
Keywords: quadratic term structure model, discrete time, bond valuation, regime change, jumps, bond option

Identifiers

Local EPrints ID: 45614
URI: http://eprints.soton.ac.uk/id/eprint/45614
ISSN: 1544-6123
PURE UUID: 3d796b33-3644-47a0-9c94-bb20d267acd9

Catalogue record

Date deposited: 18 Apr 2007
Last modified: 17 Jul 2017 15:11

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Contributors

Author: Marco Realdon

University divisions


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