Quadratic Term Structure Models for Risk-free and Defaultable Rates

  title={Quadratic Term Structure Models for Risk-free and Defaultable Rates},
  author={Li Chen and Damir Filipovic and H. Vincent Poor},
In this paper, quadratic term structure models (QTSMs) are analyzed and characterized in a general Markovian setting. The primary motivation for this work is to find a useful extension of the traditional QTSM, which is based on an Ornstein–Uhlenbeck (OU) state process, while maintaining the analytical tractability of the model. To accomplish this, we introduce the class of quadratic processes, consisting of those Markov state processes which yield QTSMs. The main result states that OU processes… CONTINUE READING
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