Asymptotics of bond yields and volatilities for extended Vasicek models under the real-world measure

Kevin John Fergusson

Research output: Contribution to journalArticleResearchpeer-review

Abstract

Vasicek's short rate model is a mean reverting model of the short rate which permits closed-form pricing formulae of zero coupon bonds and options on zero coupon bonds. This paper supplies proofs which are valid for any single factor mean reverting Gaussian short rate model having time-inhomogeneous parameters. The formulae are for the expected present value of payoffs under the real-world probability measure, known as actuarial pricing. Importantly, we give formulae for asymptotic levels of bond yields and volatilities for extended Vasicek models when suitable conditions are imposed on the model parameters.
Original languageEnglish
JournalAnnals of Financial Economics
Volume12
Issue number1
DOIs
Publication statusPublished - 2017

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