Abstract
This paper is a study of the term structure of interest rates based on the Heath-Jarrow-Morton (HJM) models with Hull-White volatility function. Under fast mean-reverting stochastic volatility, we obtain an analytic formula for an approximate bond price with estimated error using a Markovian transform method combined with a singular perturbation method. The stochastic volatility correction effect against time-to-maturity is revealed so that it can capture more of the complexities of the interest rate term structure.
| Original language | English |
|---|---|
| Article number | 1650014 |
| Journal | Fluctuation and Noise Letters |
| Volume | 15 |
| Issue number | 2 |
| DOIs | |
| Publication status | Published - 2016 Jun 1 |
All Science Journal Classification (ASJC) codes
- Mathematics(all)
- Physics and Astronomy(all)
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Park, S. H., Lee, M. K., & Kim, J. H. (2016). The Term Structure of Interest Rates under Heath-Jarrow-Morton Models with Fast Mean-Reverting Stochastic Volatility. Fluctuation and Noise Letters, 15(2), [1650014]. https://doi.org/10.1142/S0219477516500140