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Continuous time Ehrenfest process in term structure modelling

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  • Alexander Kaplun

Abstract

In this paper, a finite-state mean-reverting model for the short-rate, based on the continuous time Ehrenfest process, will be examined. Two explicit pricing formulae for zero-coupon bonds will be derived in the general and the special symmetric cases. Its limiting relationship to the Vasicek model will be examined with some numerical results.

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  • Alexander Kaplun, 2010. "Continuous time Ehrenfest process in term structure modelling," Papers 1003.6042, arXiv.org.
    • Handle: RePEc:arx:papers:1003.6042
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    1. Hans Bühlmann, 1994. "Continuous and discrete models in finance, in particular for stochastic interest rates," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 17(2), pages 3-20, September.
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