Reducible Di ¤ usions with Time-Varying Transformations with Application to Short-Term Interest Rates

@inproceedings{Bu2014ReducibleD,
  title={Reducible Di ¤ usions with Time-Varying Transformations with Application to Short-Term Interest Rates},
  author={Ruijun Bu and Jie Cheng},
  year={2014}
}
Reducible di¤usions (RDs) are nonlinear transformations of analytically solvable Basic Di¤usions (BDs). Therefore, they are constructed to be analytically tractable and ‡exible di¤usion processes. Existing literature on RDs has mostly focused on time-homogeneous transformations, which to a signi…cant extent fail to explore the full potential of RDs from both theoretical and practical point of views. In this paper, we propose ‡exible and economically justi…able time-variations to the… CONTINUE READING

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