Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/56361
Authors: 
Björk, Tomas
Landén, Camilla
Svensson, Lars
Year of Publication: 
2002
Series/Report no.: 
SSE/EFI Working Paper Series in Economics and Finance 498
Abstract: 
We consider forward rate rate models of HJM type, as well as more general infinite dimensional SDEs, where the volatility/diffusion term is stochastic in the sense of being driven by a separate hidden Markov process. Within this framework we use the previously developed Hilbert space realization theory in order provide general necessary and sufficent conditions for the existence of a finite dimensional Markovian realizations for the stochastic volatility models. We illustrate the theory by analyzing a number of concrete examples.
Subjects: 
HJM models
stochastic volatility
factor models
forward rates
state space models
Markovian realizations
infinite dimensional SDEs
JEL: 
E43
G13
Document Type: 
Working Paper

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