Stochastic flows and the forward measure

Stochastic flows and their Jacobians are used to show why, when the short rate process is described by Gaussian dynamics, (as in the Vasicek or Hull-White models), or square root, affine (Bessel) processes, (as in the Cox-Ingersoll-Ross, or Duffie-Kan models), the bond price is an exponential affine function. Using the forward measure the bond price is obtained by solving a linear ordinary differential equation; Ricatti equations are not required.

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Year of publication:	2001-10-04
Authors:	Elliott, Robert J. ; Hoek, John van der
Published in:	Finance and Stochastics. - Springer. - Vol. 5.2001, 4, p. 511-525
Publisher:	Springer
Subject:	Forward measure \| exponential affine \| bond pricing

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Extent:	application/pdf
Type of publication:	Article
Notes:	received: February 1999; final version received: October 2000
Classification:	G13 - Contingent Pricing; Futures Pricing ; C63 - Computational Techniques
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005759634