POLYNOMIAL TERM STRUCTURE MODELS

In this paper, we explore a class of tractable interest rate models that have the property price zero-coupon bond can be expressed as polynomial state diffusion process. Our results include classification all such time-homogeneous single-factor in spirit Filipović’s maximal degree theorem for exponential models, well an explicit characterization set feasible parameters case when factor process is bounded. Extensions to time-inhomogeneous and multi-factor are also considered.