An introduction to interest rate jumps at deterministic times
type: CreativeWork
description: The observation of jumps in empirical interest-rate data has prompted the inclusion of these jumps in recent term-structure models. This dissertation focusses on explaining the effects of jumps that occur at known times on the pricing of bonds. Filipovic (2009) affirms that the transition from the physical measure to the riskneutral measure is key to the pricing of bonds and other financial instruments. Jumps in the interest rate at known times add a layer of complexity to this measurechange process. A simplified version of the term-structure model proposed by Kim and Wright (2014) is employed to analyse the effect of the jumps on the one-year point on the yield curve. Jumps at deterministic times are found to have a material effect on the one-year yield with an increasing effect as time approaches a deterministic jump date.
abstract: The observation of jumps in empirical interest-rate data has prompted the inclusion of these jumps in recent term-structure models. This dissertation focusses on explaining the effects of jumps that occur at known times on the pricing of bonds. Filipovic (2009) affirms that the transition from the physical measure to the riskneutral measure is key to the pricing of bonds and other financial instruments. Jumps in the interest rate at known times add a layer of complexity to this measurechange process. A simplified version of the term-structure model proposed by Kim and Wright (2014) is employed to analyse the effect of the jumps on the one-year point on the yield curve. Jumps at deterministic times are found to have a material effect on the one-year yield with an increasing effect as time approaches a deterministic jump date.
author: Bastick, Kirk
keywords: Mathematical Finance
date published: 2022
date modified: 2026-07-24T01:33:49Z
provider: University of Cape Town
publisher: Networked Digital Library of Theses and Dissertations
type: WebPage
source organization: Department of Finance and Tax

PropertyValue
property ID: Handle
value: http://hdl.handle.net/11427/37418