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A Classification of Two-Factor Affine Diffusion Term Structure Models

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  • Christian Gourieroux
  • Razvan Sufana

Abstract

Dai and Singleton (2000) introduced a typology of affine diffusion models when the domain of admissible values of the factors is an intersection of half planes and under some additional constraints on the parameters. This condition on the domain and the additional sufficient constraints are restrictive and can considerably diminish the practical interest of affine models. In this article we successfully address the research agenda sketched by Duffie, Filipovic, Schachermayer (2003, section 12.2, p. 1042). A systematic investigation is performed and our article provides a complete typology in the two-factor case, without prior restrictions on the domain and on the parameters. Copyright 2006, Oxford University Press.

Suggested Citation

  • Christian Gourieroux & Razvan Sufana, 2006. "A Classification of Two-Factor Affine Diffusion Term Structure Models," Journal of Financial Econometrics, Oxford University Press, vol. 4(1), pages 31-52.
    • Handle: RePEc:oup:jfinec:v:4:y:2006:i:1:p:31-52
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    File URL: http://hdl.handle.net/10.1093/jjfinec/nbj003
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    References listed on IDEAS

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    1. Leippold, Markus & Wu, Liuren, 2002. "Asset Pricing under the Quadratic Class," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 37(2), pages 271-295, June.
    2. Sergei Levendorskii, 2004. "Consistency conditions for affine term structure models," Papers cond-mat/0404107, arXiv.org.
    3. Darrell Duffie & Rui Kan, 1996. "A Yield‐Factor Model Of Interest Rates," Mathematical Finance, Wiley Blackwell, vol. 6(4), pages 379-406, October.
    4. Levendorskii, Sergei, 2004. "Consistency conditions for affine term structure models," Stochastic Processes and their Applications, Elsevier, vol. 109(2), pages 225-261, February.
    5. Sergei Levendorskii, 2004. "Consistency conditions for affine term structure models," Econometric Society 2004 North American Winter Meetings 413, Econometric Society.
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    Cited by:

    1. Eduardo Abi Jaber & Bruno Bouchard & Camille Illand & Eduardo Jaber, 2018. "Stochastic invariance of closed sets with non-Lipschitz coefficients," Working Papers hal-01349639, HAL.
    2. Gourieroux, Christian & Sufana, Razvan, 2011. "Discrete time Wishart term structure models," Journal of Economic Dynamics and Control, Elsevier, vol. 35(6), pages 815-824, June.
    3. Monfort, A. & Pegoraro, F., 2007. "Switching VARMA Term Structure Models - Extended Version," Working papers 191, Banque de France.
    4. Chiarella, Carl & Hsiao, Chih-Ying & Tô, Thuy-Duong, 2016. "Stochastic correlation and risk premia in term structure models," Journal of Empirical Finance, Elsevier, vol. 37(C), pages 59-78.
    5. Gourieroux, C. & Monfort, A., 2008. "Quadratic stochastic intensity and prospective mortality tables," Insurance: Mathematics and Economics, Elsevier, vol. 43(1), pages 174-184, August.
    6. Eduardo Abi Jaber & Bruno Bouchard & Camille Illand & Eduardo Abi Jaber, 2018. "Stochastic invariance of closed sets with non-Lipschitz coefficients," Post-Print hal-01349639, HAL.
    7. Cheridito, Patrick & Filipovic, Damir & Kimmel, Robert L., 2006. "Affine Term Structure Models," Working Paper Series 2007-2, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    8. Abi Jaber, Eduardo & Bouchard, Bruno & Illand, Camille, 2019. "Stochastic invariance of closed sets with non-Lipschitz coefficients," Stochastic Processes and their Applications, Elsevier, vol. 129(5), pages 1726-1748.

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