English

Negative volatility for a 2-dimensional square root SDE

Probability 2008-11-25 v3

Abstract

In affine term structure models the short rate is modelled as an affine transformation of a multi-dimensional square root process. Sufficient conditions to avoid negative volatility factors are the multivariate Feller conditions. We will prove their necessity for a 2-dimensional square root SDE with one volatility factor by presenting a methodology based on measure transformations and solving linear systems of ordinary differential equations.

Cite

@article{arxiv.0807.1224,
  title  = {Negative volatility for a 2-dimensional square root SDE},
  author = {Peter Spreij and Enno Veerman},
  journal= {arXiv preprint arXiv:0807.1224},
  year   = {2008}
}

Comments

15 pages, 0 figures

R2 v1 2026-06-21T10:58:28.536Z