Initial Characteristic Results

Abstract

In this chapter we present initial characteristic results of our term structure model. At first, we show how to price discount bonds considered to be the most basic interest rate contracts serving as pure securities in the sense of Arrow/Debreu. Based on the discount bond pricing formula we are able to derive the term structures of interest rates and volatilities. Further, we analyze limiting cases of our model where we first demonstrate that our model contains the Ornstein-Uhlenbeck process model proposed by Vasicek (1977) as special case. Second, we examine the asymptotic behavior of the term structure of spot interest rates at the short and long end. In the last section we discuss the core influences of the state variables and the model parameters on the shape of the term structures in a comparative statistic analysis. Such an analysis is considered relevant in order to know which type of term structures are realizable within the model and to get an idea on how changes in the values of the state variables and the model parameters influence the shape of the term structures.