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On Markovian Short Rates in Term Structure Models Driven by Jump-Diffusion Processes

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  • Gapeev, Pavel V.
  • Küchler, Uwe

Abstract

We study a bond market model and related term structure of interest rates where prices of zero coupon bonds are driven by a jump-diffusion process. We present a criterion on the deterministic forward rate volatilities under which the short rate process is Markovian and give sufficient conditions on the bond price volatility structure depending on the short rate for existing a finite-dimensional Markovian realization of the term structure model.

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  • Gapeev, Pavel V. & Küchler, Uwe, 2003. "On Markovian Short Rates in Term Structure Models Driven by Jump-Diffusion Processes," SFB 373 Discussion Papers 2003,44, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    • Handle: RePEc:zbw:sfb373:200344
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    References listed on IDEAS

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    Cited by:

    1. Gapeev, Pavel V., 2004. "On arbitrage and Markovian short rates in fractional bond markets," Statistics & Probability Letters, Elsevier, vol. 70(3), pages 211-222, December.

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