Serving the Quantitative Finance Community

 
User avatar
JosephFrank
Topic Author
Posts: 1
Joined: June 13th, 2003, 3:41 pm

affine term structure models

July 10th, 2004, 7:20 pm

Hi everyone,Can someone please provide me with a simple explanation of the two factor affine models for the term structure of interest rates?I would really appreciate it .JF
 
User avatar
tosh137
Posts: 0
Joined: July 14th, 2002, 3:00 am

affine term structure models

July 10th, 2004, 11:43 pm

Do you mean the intuition behind it?I am sure you know that a nice reason behnd the n-term affine term structure model is that the yield for a zero coupon bind then becomes *linear* in the n factors. In particular for a one-term model where the short rate r is the term which is affine, the yield is then a linear function of r. (The constants are obtained solving the Ricatti equations)
Last edited by tosh137 on July 10th, 2004, 10:00 pm, edited 1 time in total.