Exponential ergodicity of an affine two-factor model based on the α-root process. (17th November 2017)

• Record Type: Journal Article
• Authors: Jin, Peng; Kremer, Jonas; Rüdiger, Barbara
• Is Part Of: Advances in applied probability. Volume 49:Number 4(2017)
• Page Start: 1144
• Page End: 1169
• Publication Date: 2017-11-17
• Subjects: Affine process, -- exponential ergodicity, -- α-root process, -- transition density, -- Foster–Lyapunov function; Primary 60J25, -- 37A25, -- Secondary 60J35, -- 60J75; Probabilities -- Periodicals; Stochastic models -- Periodicals; Electronic journals; Periodicals; 519.2
• DOI: 10.1017/apr.2017.37
• Languages: English
• ISSNs: 0001-8678

Abstract

Abstract: We study an affine two-factor model introduced by Barczy et al. (2014). One component of this two-dimensional model is the so-called α-root process, which generalizes the well-known Cox–Ingersoll–Ross process. In the α = 2 case, this two-factor model was used by Chen and Joslin (2012) to price defaultable bonds with stochastic recovery rates. In this paper we prove exponential ergodicity of this two-factor model when α ∈ (1, 2). As a possible application, our result can be used to study the parameter estimation problem of the model.