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Asset Pricing under the Quadratic Class


Leippold, Markus; Wu, L (2002). Asset Pricing under the Quadratic Class. Journal of Financial and Quantitative Analysis, 37(2):271-295.

Abstract

We identify and characterize a class of term structure models where bond yields are quadratic functions of the state vector. We label this class the quadratic class and aim to lay a solid theoretical foundation for its future empirical application. We consider asset pricing in general and derivative pricing in particular under the quadratic class. We provide two general transform methods in pricing a wide variety of fixed income derivatives in closed or semi-closed form. We further illustrate how the quadratic model and the transform methods can be applied to more general settings.

Abstract

We identify and characterize a class of term structure models where bond yields are quadratic functions of the state vector. We label this class the quadratic class and aim to lay a solid theoretical foundation for its future empirical application. We consider asset pricing in general and derivative pricing in particular under the quadratic class. We provide two general transform methods in pricing a wide variety of fixed income derivatives in closed or semi-closed form. We further illustrate how the quadratic model and the transform methods can be applied to more general settings.

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73 citations in Web of Science®
91 citations in Scopus®
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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:2002
Deposited On:11 Apr 2013 08:57
Last Modified:05 Apr 2016 16:28
Publisher:Cambridge University Press
ISSN:0022-1090
Publisher DOI:https://doi.org/10.2307/3595006
Other Identification Number:merlin-id:4532

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