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The Continuous-Time Ehrenfest Process in Term Structure Modelling
Published online by Cambridge University Press: 14 July 2016
Abstract
In this paper, a finite-state mean-reverting model for the short rate, based on the continuous-time Ehrenfest process, will be examined. Two explicit pricing formulae for zero-coupon bonds will be derived in the general and special symmetric cases. Its limiting relationship to the Vasicek model will be examined with some numerical results.
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- Research Article
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- Copyright © Applied Probability Trust 2010