Continuous time Ehrenfest process in term structure modelling

Details Continuous time Ehrenfest process in term structure modelling Continuous time Ehrenfest process in term structure modelling

2010-03-29

arxiv.org/abs/1003.6042v1

Economy

Quantitative Finance

Pricing of Securities

20 pages, 6 figures. Submitted to Applied Probability Trust.

Scientific paper

In this paper, a finite-state mean-reverting model for the short-rate, based
on the continuous time Ehrenfest process, will be examined. Two explicit
pricing formulae for zero-coupon bonds will be derived in the general and the
special symmetric cases. Its limiting relationship to the Vasicek model will be
examined with some numerical results.

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