A fractal version of the Hull-White interest rate model

作者：Hainaut Donatien^*

来源：Economic Modelling, 2013, 31: 323-334.

DOI：10.1016/j.econmod.2012.11.041

• Hidden Markov process
• Switching Brownian motion
• Interest rates
• Hull-White model
• Switching volatility
• Markov modulated volatility

This paper develops a new version of the Hull-White's model of interest rates, in which the volatility of the short term rate is driven by a Markov switching multifractal model. The interest rate dynamics is still mean reverting but the constant volatility of the Brownian motion is replaced by a multifractal process so as to capture persistent volatility shocks. In this setting, we infer properties of the short term rate distribution, a semi-closed form expression for bond prices and their dynamics under a forward measure. Finally, our work is illustrated by a numerical application in which we assess the exposure of a bonds portfolio to the interest risk.

• 出版日期2013-3