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

Tetsuhiro Honda; Kenichiro Tamaki; Takayuki Shiohama

doi:10.1016/j.frl.2009.12.001

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

Tetsuhiro Honda, Kenichiro Tamaki, Takayuki Shiohama^*

^*Corresponding author for this work

School of Political Science and Economics

Research output: Contribution to journal › Article › peer-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 language	English
Pages (from-to)	60-69
Number of pages	10
Journal	Finance Research Letters
Volume	7
Issue number	1
DOIs	https://doi.org/10.1016/j.frl.2009.12.001
Publication status	Published - 2010 Mar

Keywords

Edgeworth expansion
Short rates
Vasicek model
Zero-coupon bond pricing

ASJC Scopus subject areas

Finance

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10.1016/j.frl.2009.12.001

Cite this

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title = "Higher order asymptotic bond price valuation for interest rates with non-Gaussian dependent innovations",

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.",

keywords = "Edgeworth expansion, Short rates, Vasicek model, Zero-coupon bond pricing",

author = "Tetsuhiro Honda and Kenichiro Tamaki and Takayuki Shiohama",

note = "Funding Information: The authors are very grateful to the Editor and an anonymous referee for their helpful comments and suggestions that led to an improvement of the paper. This research was supported by Grant-in-Aid for Young Scientists (B) ( 19700268 ) and the Norinchukin Bank and Nochu Information System endowed chair of Financial Engineering in the Department of Management Science, Tokyo University of Science . ",

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AU - Honda, Tetsuhiro

AU - Tamaki, Kenichiro

AU - Shiohama, Takayuki

N1 - Funding Information: The authors are very grateful to the Editor and an anonymous referee for their helpful comments and suggestions that led to an improvement of the paper. This research was supported by Grant-in-Aid for Young Scientists (B) ( 19700268 ) and the Norinchukin Bank and Nochu Information System endowed chair of Financial Engineering in the Department of Management Science, Tokyo University of Science .

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N2 - 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.

AB - 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.

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KW - Short rates

KW - Vasicek model

KW - Zero-coupon bond pricing

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JF - Finance Research Letters

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

Abstract

Keywords

ASJC Scopus subject areas

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