Economy – Quantitative Finance – Pricing of Securities
Scientific paper
2008-09-11
Economy
Quantitative Finance
Pricing of Securities
(short) review article to be published in Encyclopedia of Quantitative Finance
Scientific paper
Affine term structure models have gained significant attention in the finance literature, mainly due to their analytical tractability and statistical flexibility. The aim of this article is to present both theoretical foundations as well as empirical aspects of the affine model class. Starting from the original one-factor short-rate models of Vasi\v{c}ek and Cox \emph{et al,} we provide an overview of the properties of regular affine processes and explain their relationship to affine term structure models. Methods for securities pricing and for parameter estimation are also discussed, demonstrating how the analytical tractability of affine models can be exploited for practical purposes.
Cuchiero Christa
Filipovic Damir
Teichmann Josef
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