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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Bibliographic Details
Published inIAENG international journal of applied mathematics Vol. 54; no. 8; pp. 1649 - 1656
Main Authors Zhang, Haoyan, Tang, Lei, Wang, Fu, Du, Yunli
Format Journal Article
LanguageEnglish
Published Hong Kong International Association of Engineers 01.08.2024
Subjects
Bond markets
Characteristic functions
Derivatives
Graphical representations
Interest rates
Parameter estimation
Pricing
Zero coupon bonds
United States > US
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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.
ISSN:1992-9978
1992-9986