mathematical finance Mathematical finance, also known as quantitative finance and financial mathematics, is a field of applied mathematics, concerned with mathematical modeling in the financial field. In general, there exist two separate branches of finance that req ...

, the Cheyette Model is a quasi-

Gaussian Carl Friedrich Gauss (1777–1855) is the eponym of all of the topics listed below. There are over 100 topics all named after this German mathematician and scientist, all in the fields of mathematics, physics, and astronomy. The English eponymo ...

, quadratic volatility model of

interest rate An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, ...

s intended to overcome certain limitations of the Heath-Jarrow-Morton framework. By imposing a special time dependent structure on the forward rate volatility function, the Cheyette approach allows for dynamics which are Markovian, in contrast to the general HJM model. This in turn allows the application of standard econometric valuation concepts.

External links and references

* * Cheyette, O. (1994)
''Markov representation of the Heath-Jarrow-Morton model''
(working paper). Berkeley: BARRA Inc. * Chibane, M. and Law, D. (2013)
''A quadratic volatility Cheyette model''
Risk.net Financial models Mathematical finance Fixed income analysis Heath–Jarrow–Morton framework {{finance-stub