Communications for Statistical Applications and Methods

The Korean Statistical Society (한국통계학회)
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Positive Interest Rate Model in the Presence of Jumps

  • Rhee, Joonhee (Department of Business and Adminstration, Soongsil University) ;
  • Kim, Yoon Tae (Department of Statistics, Hallym University)
  • Published : 2004.12.01
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Abstract

HJM representation of the term structure of interest rates sometimes produces the negative interest rates with positive probability. This paper shows that the condition of positive interest rates can be derived from the jump diffusion process, if a proper positive martingale process with the compensated jump process is chosen. As in Flesaker and Hughston, the condition is incorporated into the bond price process.

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References

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