Modelling the Term Structure of Monetary Rates*
IZZI LUISA Credit Risk Department ofBanca Nazionale del Lavoro, Department of Mathematics, Statistics and Information Technology, Faculty of Economics, and Centro Interdipartimentale Vito Volterra, University of Rome Tor Vergata, Italy
Abstract
chapter addresses the general problem of modeling and estimating the term structure of interest rates by adopting the use of jump-diffusion mean-reverting and stable Paretian models. The chapter proposes a new procedure to recursively compute interest rates subject to both Brownian and Poissonian noises. This procedure is consistent with the absence of arbitrage, non-negativity of interest rates, the mean-reverting hypothesis and the recom-bining ...
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