Stochastic flows and the forward measure

Abstract

Stochastic flows and their Jacobians are used to show why, when the short rate process is described by Gaussian dynamics, (as in the Vasicek or Hull-White models), or square root, affine (Bessel) processes, (as in the CoxIngersoll-Ross, or Duffie-Kan models), the bond price is an exponential affine function. Using the forward measure the bond price is… (More)
DOI: 10.1007/s007800000039

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