Bond Pricing under CIR Process with Threshold Setting

Bond Pricing under CIR Process with Threshold Setting

This paper presents an examination of the conditional characteristic function, first hitting time problem and bond pricing under the CIR process with a threshold setting, also known as CIRT. To investigate the conditional characteristic function of CIRT, we solve an equation associated with the infi...

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Veröffentlicht in:IAENG international journal of applied mathematics 2024-08, Vol.54 (8), p.1649-1656
Hauptverfasser: Zhang, Haoyan, Tang, Lei, Wang, Fu, Du, Yunli
Format: Artikel
Sprache:eng
Schlagworte:
Bond markets
Characteristic functions
Derivatives
Graphical representations
Interest rates
Parameter estimation
Pricing
Zero coupon bonds
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Zusammenfassung:This paper presents an examination of the conditional characteristic function, first hitting time problem and bond pricing under the CIR process with a threshold setting, also known as CIRT. To investigate the conditional characteristic function of CIRT, we solve an equation associated with the infinitesimal generator and its domain. Using a similar approach, we solve the bond pricing problem by introducing the sharpe ratio. All the results we were able to get are in closed form. Sensitive analysis is provided under various coefficients using graphical representations.
ISSN:1992-9978
1992-9986