Asymptotic expansion for interest rates with non-gaussian dependent innovations

Takayuki Shiohama, Kenichiro Tamaki

Research output: Chapter in Book/Report/Conference proceedingChapter

1 Citation (Scopus)

Abstract

We consider the effect on zero-coupon bond price and option valuation when a short rate model has non-Gaussian dependent innovations. Higher-order asymptotic theory enables approximate bond price formula and zero-coupon bond option price formula to be obtained. Some numerical examples are presented, where the process of innovation follows a particular model. These examples indicate that non-Gaussianity and dependence of innovations have a great influence on both zero-coupon bond price and option valuation.

Original languageEnglish
Title of host publicationInterest Rates
Subtitle of host publicationTerm Structure Models, Monetary Policy, and Prediction
PublisherNova Science Publishers, Inc.
Pages19-61
Number of pages43
ISBN (Print)9781613247204
Publication statusPublished - 2013 Jan 1

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Keywords

  • Bond option
  • Edgeworth expansion
  • Short rates
  • Vasicek model
  • Zero-coupon bond pricing

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)
  • Social Sciences(all)

Cite this

Shiohama, T., & Tamaki, K. (2013). Asymptotic expansion for interest rates with non-gaussian dependent innovations. In Interest Rates: Term Structure Models, Monetary Policy, and Prediction (pp. 19-61). Nova Science Publishers, Inc..