Affine Processes and Applications in Finance

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Affine Processes and Applications in Finance

by Darrell Duffie of Stanford University,
Damir Filipović of Princeton University, and
Walter Schachermayer of the Vienna University of Technology

September 24, 2002

Abstract: We provide the definition and a complete characterization of regular affine processes. This type of process unifies the concepts of continuous state branching processes with immigration and Ornstein-Uhlenbeck type processes. We show, and provide foundations for, a wide range of financial applications for regular affine processes.

Mathematics Subject Classification: 60J25, 90A09.

Keywords: Affine Process, Characteristic Function, Continuous-State Branching with Immigration, Default Risk, Infinitely Decomposable, Interest Rates, Option Pricing, Ornstein-Uhlenbeck Type.

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