Extension of Short Rate Model Under a Lévy Process

Abstract

A lot of abnormalities occur in real-life scenarios, thus leading to some difficulties in modelling such scenarios without a deeper understanding of certain aspects of Lévy processes. In this paper, the short rate model of Hull-White (1990) is extended to a model for capturing possibilities of jumps in real-life situations using a class of Lévy processes called a variance gamma process. Mathematics Subject Classification (2020). 91G30, 62P05 Keywords: Lévy processes, Brownian motion, Hull-White model, Variance gamma process

Keywords

• Lévy processes, Brownian motion, Hull-White model, Variance gamma process