Real-world forward rate dynamics with affine realizations
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arXiv
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| Autores principales: | , |
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| Formato: | Preprint |
| Publicado: |
2019
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| _version_ | 1866915627454693376 |
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| author | Platen, Eckhard Tappe, Stefan |
| author_facet | Platen, Eckhard Tappe, Stefan |
| contents | We investigate the existence of affine realizations for Lévy driven interest rate term structure models under the real-world probability measure, which so far has only been studied under an assumed risk-neutral probability measure. For models driven by Wiener processes, all results obtained under the risk-neutral approach concerning the existence of affine realizations are transferred to the general case. A similar result holds true for models driven by compound Poisson processes with finite jump size distributions. However, in the presence of jumps with infinite activity we obtain severe restrictions on the structure of the market price of risk; typically, it must even be constant. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_1907_05072 |
| institution | arXiv |
| publishDate | 2019 |
| record_format | arxiv |
| spellingShingle | Real-world forward rate dynamics with affine realizations Platen, Eckhard Tappe, Stefan Mathematical Finance Probability 91G80, 60H15 We investigate the existence of affine realizations for Lévy driven interest rate term structure models under the real-world probability measure, which so far has only been studied under an assumed risk-neutral probability measure. For models driven by Wiener processes, all results obtained under the risk-neutral approach concerning the existence of affine realizations are transferred to the general case. A similar result holds true for models driven by compound Poisson processes with finite jump size distributions. However, in the presence of jumps with infinite activity we obtain severe restrictions on the structure of the market price of risk; typically, it must even be constant. |
| title | Real-world forward rate dynamics with affine realizations |
| topic | Mathematical Finance Probability 91G80, 60H15 |
| url | https://arxiv.org/abs/1907.05072 |