Asymptotic behavior of bond yields and volatilities for the extended 3/2 model under the real-world measure
Year: 2024
Type: article
Abstract: The extended $3/2$ short rate model is a mean reverting model of the short rate which, for suitably chosen parameters, permits a sensible term structure of bond yields and closed-form valuation formulae of zero-coupon bonds and options. This article supplies proofs of the formulae for the expected present values of future cash flows under the real-world probability measure, known as actuarial valuation. Finally, we give formulae for asymptotic levels of bond yields and formulae for bond option prices for the extended $3/2$ model, under particular conditions on its parameters.
Source: Annals of Actuarial Science
Author: Kevin Fergusson
Institution: Bond University
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $3,450
OpenAlex ID: W4404487783