Electronic Resource
350 Main Street , Malden , MA 02148 , USA , and 9600 Garsington Road , Oxford OX4 2DQ , UK .
:
Blackwell Publishers, Inc.
Mathematical finance
14 (2004), S. 0
ISSN:
1467-9965
Source:
Blackwell Publishing Journal Backfiles 1879-2005
Topics:
Mathematics
,
Economics
Notes:
We study simple models of short rates such as the Vasicek or CIR models, and compute corrections that come from the presence of fast mean-reverting stochastic volatility. We show how these small corrections can affect the shape of the term structure of interest rates giving a simple and efficient calibration tool. This is used to price other derivatives such as bond options. The analysis extends the asymptotic method developed for equity derivatives in Fouque, Papanicolaou, and Sircar (2000b). The assumptions and effectiveness of the theory are tested on yield curve data.
Type of Medium:
Electronic Resource
URL:
http://dx.doi.org/10.1111/j.0960-1627.2004.00188.x
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