Relaxation processes in administered-rate pricing
We show how the theory of anelasticity unifies the observed dynamics and proposed models of administered-rate products. This theory yields a straightforward approach to rate model construction that we illustrate by simulating the observed relaxation dynamics of two administered rate products. We also demonstrate how the use of this formalism leads to a natural definition of market friction.
Hawkins
RJ
Bear, Stearns Securities Corporation, 220 Bush Street, Suite 845, San Francisco, California 94104, USA.
Arnold
MR