Please use this identifier to cite or link to this item: http://bura.brunel.ac.uk/handle/2438/30823
Title: TRACTABLE AFFINE VOLATILITY TERM STRUCTURE MODELS
Authors: Realdon, M
Keywords: term structure models;cumulant transform;bond pricing;affine models
Issue Date: 2025
Publisher: [s.n.]
Citation: Realdon, M. (2025) 'TRACTABLE AFFINE VOLATILITY TERM STRUCTURE MODELS' (in submission)
Abstract: In affine term structure models the drift and conditional variance of the factors driving the short interest rate are affine in the factors themselves. This paper provides bond prices in approximate closed form when the drift and the conditional standard deviation (i.e. volatility, not variance) of the said factors are affine in the factors themselves, so as to bypass the admissibility and tractability restrictions of affine models. However the empirical evidence from US yields shows that "affine volatility" models do not fit yields and yield volatilities better than affine models. Thus the admissibility and tractability restrictions of affine models do not "cost much".
Description: JEL classification: G12, G13.
URI: https://bura.brunel.ac.uk/handle/2438/30823
Other Identifiers: ORCiD: Marco Realdon https://orcid.org/0000-0002-4160-4463
Appears in Collections:Dept of Economics and Finance Embargoed Research Papers

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