What is the natural scale for a L\'evy process in modelling term structure of interest rates?
Probability
2008-12-10 v1 Computational Finance
Abstract
This paper gives examples of explicit arbitrage-free term structure models with L\'evy jumps via state price density approach. By generalizing quadratic Gaussian models, it is found that the probability density function of a L\'evy process is a "natural" scale for the process to be the state variable of a market.
Keywords
Cite
@article{arxiv.math/0612341,
title = {What is the natural scale for a L\'evy process in modelling term structure of interest rates?},
author = {Jirô Akahori and Takahiro Tsuchiya},
journal= {arXiv preprint arXiv:math/0612341},
year = {2008}
}