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Short rate analysis and marked point processes

Author

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  • Robert J. Elliott
  • Allanus H. Tsoi
  • Shiu Hong Lui

Abstract

In this paper we model the instantaneous spot interest rate in a financial market by means of a marked point process with bounded, predictable intensity. The transformed intensity of the point process vanishes when the interest rate leaves a prescribed bounded interval. We show that the pure discount bond price satisfies a partial differential difference equation under the risk-adjusted measure P * . Finally, we perform some numerical simulations of the discount bond price. Copyright Springer-Verlag Berlin Heidelberg 1999

Suggested Citation

  • Robert J. Elliott & Allanus H. Tsoi & Shiu Hong Lui, 1999. "Short rate analysis and marked point processes," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 50(1), pages 149-160, August.
    • Handle: RePEc:spr:mathme:v:50:y:1999:i:1:p:149-160
    DOI: 10.1007/s001860050041
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