We have seen in Sects. 5.3 and 9.3 above that an affine diffusion induces an affine term-structure. In this chapter, we discuss the class of affine processes in more detail. Their nice analytical properties make them favorite for a broad range of financial applications, including term-structure modeling, option pricing and credit risk modeling.
KeywordsOption Price Riccati Equation Implied Volatility Strike Price Diffusion Matrix
Unable to display preview. Download preview PDF.