publication . Article . Preprint . 2006

Quadratic term structure models in discrete time

Marco Realdon;
Open Access
  • Published: 01 Jan 2006 Journal: Finance Research Letters, volume 3, pages 277-289 (issn: 1544-6123, Copyright policy)
  • Publisher: Elsevier BV
This paper extends the results on quadratic term structure models in continuos time to the discrete time setting. The continuos time setting can be seen as a special case of the discrete time one. Recursive closed form solutions for zero coupon bonds are provided even in the presence of multiple correlated underlying factors. Pricing bond options requires simple integration. Model parameters may well be time dependent without scuppering such tractability. Model estimation does not require a restrictive choice of the market price of risk. The model can also be used for pricing credit risk and is particularly useful when the factors are or depend on periodically r...
Persistent Identifiers
free text keywords: Finance, Quadratic term structure model, discrete time, bond valuation, recursive solution, bond option, Mathematical optimization, Quadratic equation, Bond option, Bond valuation, Special case, Credit risk, Bond, Zero-coupon bond, Economics, Discrete time and continuous time, jel:G12, jel:G13

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