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Transition Densities for Interest Rate and Other Nonlinear Diffusions
Author(s) -
AïtSahalia Yacine
Publication year - 1999
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/0022-1082.00149
Subject(s) - interest rate , nonlinear system , diffusion , statistical physics , transition (genetics) , mathematics , valuation (finance) , focus (optics) , transition rate matrix , derivative (finance) , function (biology) , econometrics , mathematical optimization , computer science , economics , statistics , physics , financial economics , thermodynamics , accounting , chemistry , biochemistry , optics , quantum mechanics , evolutionary biology , biology , gene , monetary economics
This paper applies to interest rate models the theoretical method developed in Aït‐Sahalia (1998) to generate accurate closed‐form approximations to the transition function of an arbitrary diffusion. While the main focus of this paper is on the maximum‐likelihood estimation of interest rate models with otherwise unknown transition functions, applications to the valuation of derivative securities are also briefly discussed.