Scandinavian Working Papers in Economics
HomeAboutSeriesSubject/JEL codesAdvanced Search
The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 498:
Finite dimensional Markovian realizations for stochastic volatility forward rate models

Tomas Björk (), Camilla Landén and Lars Svensson ()

Abstract: We consider forward rate rate models of HJM type, as well as more general infinite dimensional SDEs, where the volatility/diffusion term is stochastic in the sense of being driven by a separate hidden Markov process.

Within this framework we use the previously developed Hilbert space realization theory in order provide general necessary and sufficent conditions for the existence of a finite dimensional Markovian realizations for the stochastic volatility models. We illustrate the theory by analyzing a number of concrete examples.

Keywords: HJM models; stochastic volatility; factor models; forward rates; state space models; Markovian realizations; infinite dimensional SDEs; (follow links to similar papers)

JEL-Codes: E43; G13; (follow links to similar papers)

47 pages, April 29, 2002, Revised May 7, 2002

Before downloading any of the electronic versions below you should read our statement on copyright.
Download GhostScript for viewing Postscript files and the Acrobat Reader for viewing and printing pdf files.

Full text versions of the paper:

hastef0498.pdf    PDF-file (307kB) 
Download Statistics

Questions (including download problems) about the papers in this series should be directed to Helena Lundin ()
Report other problems with accessing this service to Sune Karlsson () or Helena Lundin ().

Programing by
Design by Joachim Ekebom

Handle: RePEc:hhs:hastef:0498 This page was generated on 2014-12-14 19:23:03