Discrete Time Models of Bond Pricing
David Backus
Silvio Foresi
Chris I Telmer
10.1184/R1/6705146.v1
https://kilthub.cmu.edu/articles/journal_contribution/Discrete_Time_Models_of_Bond_Pricing/6705146
We explore a variety of models and approaches to bond pricing, including those
associated with Vasicek, Cox-Ingersoll-Ross, Ho and Lee,and Heath-Jarrow-Morton,
as well as models with jumps, multiple factors, and stochastic volatility. We describe
each model in a common theoretical framework and explain the reasoning underlying
the choice of parameter values. Our framework has continuous state variables but
discrete time, which we regard as a convenient middle ground between the stochastic
calculus of high theory and the binomial models of classroom fame. In this setting,
most of the models we examine are easily implemented on a spreadsheet.
2001-12-01 00:00:00
bond yields
pricing kernels
forward rates
fixed income derivatives