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Zero‐coupon bond prices in the Vasicek and CIR models: Their computation as group‐invariant solutions
Author(s) -
Sinkala W.,
Leach P. G. L.,
O'Hara J. G.
Publication year - 2008
Publication title -
mathematical methods in the applied sciences
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.719
H-Index - 65
eISSN - 1099-1476
pISSN - 0170-4214
DOI - 10.1002/mma.935
Subject(s) - vasicek model , mathematics , homogeneous space , invariant (physics) , bond valuation , partial differential equation , valuation (finance) , short rate , differential equation , cox–ingersoll–ross model , mathematical analysis , bond , interest rate , mathematical physics , geometry , economics , finance , yield curve
We compute prices of zero‐coupon bonds in the Vasicek and Cox–Ingersoll–Ross interest rate models as group‐invariant solutions. Firstly, we determine the symmetries of the valuation partial differential equation that are compatible with the terminal condition and then seek the desired solution among the invariant solutions arising from these symmetries. We also point to other possible studies on these models using the symmetries admitted by the valuation partial differential equations. Copyright © 2007 John Wiley & Sons, Ltd.