A forward-backward SDE approach to affine models

  title={A forward-backward SDE approach to affine models},
  author={Cody B. Hyndman},
We consider factor models for interest rates and asset prices where the riskneutral dynamics of the factors process is modelled by an affine diffusion. We characterize the factors process and bond price in terms of forward-backward stochastic differential equations, prove an existence and uniqueness theorem which gives the solution explicitly, and characterize the bond price as an exponential affine function of the factors in a new way. Our approach unifies the results, based on stochastic… CONTINUE READING

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