Phase transition in a log-normal Markov functional model

Details Phase transition in a log-normal Markov functional model Phase transition in a log-normal Markov functional model

2010-07-05

arxiv.org/abs/1007.0691v3

Economy

Quantitative Finance

Computational Finance

9 pages, 5 figures. v2: Added asymptotic expressions for the convexity-adjusted Libors in the small and large volatility limit

Scientific paper

We derive the exact solution of a one-dimensional Markov functional model with log-normally distributed interest rates in discrete time. The model is shown to have two distinct limiting states, corresponding to small and asymptotically large volatilities, respectively. These volatility regimes are separated by a phase transition at some critical value of the volatility. We investigate the conditions under which this phase transition occurs, and show that it is related to the position of the zeros of an appropriately defined generating function in the complex plane, in analogy with the Lee-Yang theory of the phase transitions in condensed matter physics.

Affiliated with

Also associated with

No associations

Rating

Phase transition in a log-normal Markov functional model does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.

If you have personal experience with Phase transition in a log-normal Markov functional model, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and Phase transition in a log-normal Markov functional model will most certainly appreciate the feedback.

Rate now

Comments { 0 }

Profile ID: LFWR-SCP-O-595396