TY - JOUR
T1 - Asymptotic behavior of bond yields and volatilities for the extended 3/2 model under the real-world measure
AU - Fergusson, Kevin
N1 - Publisher Copyright:
© The Author(s), 2024. Published by Cambridge University Press on behalf of Institute and Faculty of Actuaries.
PY - 2024/11/18
Y1 - 2024/11/18
N2 - The extended 3/2 short rate model is a mean reverting model of the short rate which, for suitably chosen parameters, permits a sensible term structure of bond yields and closed-form valuation formulae of zero-coupon bonds and options. This article supplies proofs of the formulae for the expected present values of future cash flows under the real-world probability measure, known as actuarial valuation. Finally, we give formulae for asymptotic levels of bond yields and formulae for bond option prices for the extended 3/2 model, under particular conditions on its parameters.
AB - The extended 3/2 short rate model is a mean reverting model of the short rate which, for suitably chosen parameters, permits a sensible term structure of bond yields and closed-form valuation formulae of zero-coupon bonds and options. This article supplies proofs of the formulae for the expected present values of future cash flows under the real-world probability measure, known as actuarial valuation. Finally, we give formulae for asymptotic levels of bond yields and formulae for bond option prices for the extended 3/2 model, under particular conditions on its parameters.
UR - http://www.scopus.com/inward/record.url?scp=85210399902&partnerID=8YFLogxK
U2 - 10.1017/S1748499524000174
DO - 10.1017/S1748499524000174
M3 - Article
AN - SCOPUS:85210399902
SN - 1748-4995
SP - 1
EP - 30
JO - Annals of Actuarial Science
JF - Annals of Actuarial Science
ER -