State space decomposition and classification of term structure shapes in the two-factor Vasicek model
Abstract
Using the concept of envelopes we show how to divide the state space $\RR^2$ of the two-factor Vasicek model into regions of identical term-structure shape. We develop a formula for determining the shapes utilizing winding numbers and give a nearly complete classification of the parameter space regarding the occurring shapes.
- Publication:
-
arXiv e-prints
- Pub Date:
- March 2023
- DOI:
- 10.48550/arXiv.2303.13966
- arXiv:
- arXiv:2303.13966
- Bibcode:
- 2023arXiv230313966K
- Keywords:
-
- Quantitative Finance - Mathematical Finance;
- 91G30;
- 53A04