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2013 Lie-Algebraic Approach for Pricing Zero-Coupon Bonds in Single-Factor Interest Rate Models
C. F. Lo
J. Appl. Math. 2013: 1-9 (2013). DOI: 10.1155/2013/276238

Abstract

The Lie-algebraic approach has been applied to solve the bond pricing problem in single-factor interest rate models. Four of the popular single-factor models, namely, the Vasicek model, Cox-Ingersoll-Ross model, double square-root model, and Ahn-Gao model, are investigated. By exploiting the dynamical symmetry of their bond pricing equations, analytical closed-form pricing formulae can be derived in a straightfoward manner. Time-varying model parameters could also be incorporated into the derivation of the bond price formulae, and this has the added advantage of allowing yield curves to be fitted. Furthermore, the Lie-algebraic approach can be easily extended to formulate new analytically tractable single-factor interest rate models.

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C. F. Lo. "Lie-Algebraic Approach for Pricing Zero-Coupon Bonds in Single-Factor Interest Rate Models." J. Appl. Math. 2013 1 - 9, 2013. https://doi.org/10.1155/2013/276238

Information

Published: 2013
First available in Project Euclid: 14 March 2014

zbMATH: 1266.91025
MathSciNet: MR3056212
Digital Object Identifier: 10.1155/2013/276238

Rights: Copyright © 2013 Hindawi

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