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arXiv · 2303.13966

State space decomposition and classification of term structure shapes in the two-factor Vasicek model

Martin Keller-Ressel·Felix Sachse
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Abstract

Using the concept of envelopes we show how to divide the state space $\RR^2$ of the two-factor Vasicek model into regions of identical term-structure shape. We develop a formula for determining the shapes utilizing winding numbers and give a nearly complete classification of the parameter space regarding the occurring shapes.

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Martin Keller-Ressel, Felix Sachse. 2023-03-24. State space decomposition and classification of term structure shapes in the two-factor Vasicek model. https://arxiv.org/abs/2303.13966

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