1. On the singular limit of solutions to the Cox-Ingersoll-Ross interest rate model with stochastic volatility
- Creator:
- Stehlíková, Beáta and Ševčovič, Daniel
- Format:
- bez média and svazek
- Type:
- model:article and TEXT
- Subject:
- Cox-Ingersoll-Ross two factors model, rapidley oscillating volatility, singular limit of solution, and asymptotic expansion
- Language:
- English
- Description:
- In this paper we are interested in term structure models for pricing zero coupon bonds under rapidly oscillating stochastic volatility. We analyze solutions to the generalized Cox-Ingersoll-Ross two factors model describing clustering of interest rate volatilities. The main goal is to derive an asymptotic expansion of the bond price with respect to a singular parameter representing the fast scale for the stochastic volatility process. We derive the second order asymptotic expansion of a solution to the two factors generalized CIR model and we show that the first two terms in the expansion are independent of the variable representing stochastic volatility.
- Rights:
- http://creativecommons.org/publicdomain/mark/1.0/ and policy:public