Time-changed affine models: fitting interest-rates and CDS term-structures without shift
(2018) 10th world congress of the Bachelier Finance Society — Location: Dublin
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- Abstract
- The class of affine short-rate or intensity models are very popular in finance for tractability reasons. For instance, time-homogeneous models like Vasicek, CIR and JCIR are clearly the most popular models to describe short-rate or default intensity dynamics. However, they are too scarce to allow for a perfect fit to a specified term-structure. In this paper, we propose a method based on change of times. By speeding up or slowing down the clock, we can make sure to fit any valid zero-coupon bond or CDS curves without affecting the range of the initial time-homogeneous model.
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Citations
Mbaye, C., & Vrins, F. (2018). Time-changed affine models: fitting interest-rates and CDS term-structures without shift. 10th world congress of the Bachelier Finance Society, Dublin. https://hdl.handle.net/2078.5/173089