Affine Processes on Positive Semidefinite Matrices
57 Pages Posted: 4 Oct 2009 Last revised: 8 Mar 2011
Date Written: September 30, 2009
This paper provides the mathematical foundation for stochastically continuous affine processes on the cone of positive semidefinite symmetric matrices. These matrix-valued affine processes have arisen from a large and growing range of useful applications in finance, including multi-asset option pricing with stochastic volatility and correlation structures, and fixed-income models with stochastically correlated risk factors and default intensities.
Keywords: affine process, stochastic correlation, term structure
JEL Classification: C60, G12, G13
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