Higher order asymptotic bond price valuation for interest rates with non-Gaussian dependent innovations

Tetsuhiro Honda, Kenichiro Tamaki, Takayuki Shiohama

Research output: Contribution to journalArticlepeer-review

5 Citations (Scopus)

Abstract

This paper considers the effect on zero-coupon bond price valuation when short rate model has non-Gaussian dependent innovations. Higher order asymptotic theory enables us to obtain the approximate bond price formula. Some numerical examples are presented, where the process of innovations follows particular model. These examples indicate non-Gaussianity and dependency of innovations have a great influence on zero-coupon bond price.

Original languageEnglish
Pages (from-to)60-69
Number of pages10
JournalFinance Research Letters
Volume7
Issue number1
DOIs
Publication statusPublished - 2010 Mar 1

Keywords

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

ASJC Scopus subject areas

  • Finance

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