Bond Pricing under CIR Process with Threshold Setting
This paper presents an examination of the conditional characteristic function, first hitting time problem and bond pricing under the CIR process with a threshold setting, also known as CIRT. To investigate the conditional characteristic function of CIRT, we solve an equation associated with the infi...
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Published in | IAENG international journal of applied mathematics Vol. 54; no. 8; pp. 1649 - 1656 |
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Main Authors | , , , |
Format | Journal Article |
Language | English |
Published |
Hong Kong
International Association of Engineers
01.08.2024
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Subjects | |
Online Access | Get full text |
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Summary: | This paper presents an examination of the conditional characteristic function, first hitting time problem and bond pricing under the CIR process with a threshold setting, also known as CIRT. To investigate the conditional characteristic function of CIRT, we solve an equation associated with the infinitesimal generator and its domain. Using a similar approach, we solve the bond pricing problem by introducing the sharpe ratio. All the results we were able to get are in closed form. Sensitive analysis is provided under various coefficients using graphical representations. |
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ISSN: | 1992-9978 1992-9986 |