Exponential martingales and CIR model
Volume 83 / 2008
Banach Center Publications 83 (2008), 243-249
MSC: 91B28, 60G46, 60H30.
DOI: 10.4064/bc83-0-15
Abstract
With the use of exponential martingales and the Girsanov theorem we show how to calculate bond prices in a large variety of square root processes. We clarify and correct several errors that abound in financial literature concerning these processes. The most important topics are linear risk premia, the Longstaff double square model, and calculations concerning correlated CIR processes.
