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- CrashedMint
- Posts: 4
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Affine term structure
Could you guys help me understand this?Q:Given an affine term structure, i.e.assume mu and sigma^2 to be constant. Derive the expressions for A and B in order to admit ATS.My A:If mu and sigma are constant thenandNow we want the coefficient of r to be zero which is achieved if the partial derivative of A towards time is =1. Also A(T,T) = 0.It remainsFrom here on I don't understand it.Apparently the solution is that Why?and as a last step this expression for A can be plugged into the equation again so that Why?Thanks for your help!
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- srednister
- Posts: 0
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Affine term structure
I would say, don't bother to look into Affine. Turn to HJM & LMM. But, FYI, I guess Shreve's book presents Affine explicitly.