Continuous time Ehrenfest process in term structure modelling
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Date
2009-10-20T08:43:41Z
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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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Keywords
Ehrenfest model, interest rate derivatives, shortrate, term structure, Vasicek model, zero-coupon bond