Discrete-time Dynamic Term Structure Models with Generalized Market Prices of Risk

@inproceedings{Dai2005DiscretetimeDT,
  title={Discrete-time Dynamic Term Structure Models with Generalized Market Prices of Risk},
  author={Q. Dai and Anh Kha Le and Kenneth J. Singleton},
  year={2005}
}
This paper develops a rich class of discrete-time, nonlinear dynamic term structure models (DTSMs). Under the risk-neutral measure, the distribution of the state vector Xt resides within a family of discrete-time affine processes that nests the exact discrete-time counterparts of the entire class of continuous-time models in Duffie and Kan (1996) and Dai and Singleton (2000). Moreover, we allow the market price of risk Λt, linking the risk-neutral and historical distributions of X, to depend… CONTINUE READING

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