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Asymptotic behavior of bond yields and volatilities for the extended 3/2 model under the real-world measure
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- Journal:
- Annals of Actuarial Science , First View
- Published online by Cambridge University Press:
- 18 November 2024, pp. 1-30
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- Article
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The extended
$3/2$ short rate model is a mean reverting model of the short rate which, for suitably chosen parameters, permits a sensible term structure of bond yields and closed-form valuation formulae of zero-coupon bonds and options. This article supplies proofs of the formulae for the expected present values of future cash flows under the real-world probability measure, known as actuarial valuation. Finally, we give formulae for asymptotic levels of bond yields and formulae for bond option prices for the extended 
$3/2$ model, under particular conditions on its parameters.
