A theoretical study of a short rate model

Abstract

The goal of this project is to do a theoretical study of a short interest rate model under the risk neutral probability, which is able to represent long range dependence. In order to do this, it will be explained the necessary literature to understand the model. Furthermore, we will expose the consequences of adapting this model for evaluating bonds and derivatives. In order to do this, we will use ambit processes which in general are not semimartingales. Our purpose is to see if these new models can capture the features of the bond market by extending popular models like the Vasicek model.