Corpus ID: 222291518

Inflation, ECB and short-term interest rates: A new model, with calibration to market data

@article{Antonacci2020InflationEA,
  title={Inflation, ECB and short-term interest rates: A new model, with calibration to market data},
  author={Flavia Antonacci and Cristina Costantini and Fernanda D'Ippoliti and Marco Papi},
  journal={arXiv: Mathematical Finance},
  year={2020}
}
We propose a new model for the joint evolution of the European inflation rate, the European Central Bank official interest rate and the short-term interest rate, in a stochastic, continuous time setting. We derive the valuation equation for a contingent claim and show that it has a unique solution. The contingent claim payoff may depend on all three economic factors of the model and the discount factor is allowed to include inflation. Taking as a benchmark the model of Ho, H.W., Huang, H.H… Expand

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