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Pricing under the Real-World Probability Measure for Jump-Diffusion Term Structure Models
| Content Provider | Semantic Scholar |
|---|---|
| Author | Bruti-Liberati, Nicola Nikitopoulos-Sklibosios, Christina Platen, Eckhard |
| Copyright Year | 2007 |
| Abstract | This paper considers interest rate term structure models in a market attracting both continuous and discrete types of uncertainty. The event driven noise is modelled by a Poisson random measure. Using as numeraire the growth optimal portfolio, interest rate derivatives are priced under the real-world probability measure. In particular, the real-world dynamics of the forward rates are derived and, for specific volatility structures, finite dimensional Markovian representations are obtained. Furthermore, allowing for a stochastic short rate, a class of tractable affine term structures is derived where an equivalent risk-neutral probability measure does not exist. |
| File Format | PDF HTM / HTML |
| Alternate Webpage(s) | https://www.uts.edu.au/sites/default/files/qfr-archive-02/QFR-rp198.pdf |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
