On the singular limit of solutions to the Cox-Ingersoll-Ross interest rate model with stochastic volatility

Title:

On the singular limit of solutions to the Cox-Ingersoll-Ross interest rate model with stochastic volatility

Creator:

Stehlíková, Beáta and Ševčovič, Daniel

Identifier:

https://cdk.lib.cas.cz/client/handle/uuid:0b049710-df4d-404c-a25b-64c6d49e5caf
uuid:0b049710-df4d-404c-a25b-64c6d49e5caf

Subject:

Cox-Ingersoll-Ross two factors model, rapidley oscillating volatility, singular limit of solution, and asymptotic expansion

Type:

model:article and TEXT

Format:

bez média and svazek

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.

Language:

English

Rights:

http://creativecommons.org/publicdomain/mark/1.0/
policy:public

Coverage:

[670]-680

Source:

Kybernetika | 2009 Volume:45 | Number:4

Harvested from:

CDK

Metadata only:

false