For general volatility structures for forward rates, the evolution of interest rates may not be Markovian and the entire path may be necessary to capture the dynamics of the term structure. This article identifies con...For general volatility structures for forward rates, the evolution of interest rates may not be Markovian and the entire path may be necessary to capture the dynamics of the term structure. This article identifies conditions on the volatility structure of forward rates that permit the dynamics of the term structure to be represented by a finite-dimensional state variable Markov process. In the deterministic volatility case, we interpret then-factor model as a sum ofn unidimensional models.展开更多
文摘For general volatility structures for forward rates, the evolution of interest rates may not be Markovian and the entire path may be necessary to capture the dynamics of the term structure. This article identifies conditions on the volatility structure of forward rates that permit the dynamics of the term structure to be represented by a finite-dimensional state variable Markov process. In the deterministic volatility case, we interpret then-factor model as a sum ofn unidimensional models.
