What does x0 represent in a Process for ShortRateDynamics?

[newbie73]

I've been trying to understand more about the mechanics of the Short Rate Models.  Can someone give a high level explanation of the Process class and how the ShortRateDynamics class uses it to determine the theoretical value of the short rate?

I am assuming that x0 refers to the maturity in years of the short rate, correct?  So the call:
    r0 = dynamics()->process().shortRate(0.0, x0)
is requesting the theoretical short rate from time = [0.0, x0] ?

discount(Time t)
{
    x0 = dynamics()->process().x0
    r0 = dynamics()->process().shortRate(0.0, x0)
    return discountBond(0.0, t, r0)
}

[Luigi Ballabio]

Apologies for the delay.

On Thu, 2007-09-20 at 13:03 -0700, newbie73 wrote:
> I've been trying to understand more about the mechanics of the Short Rate
> Models.  Can someone give a high level explanation of the Process class and
> how the ShortRateDynamics class uses it to determine the theoretical value
> of the short rate?
>
> I am assuming that x0 refers to the maturity in years of the short rate,
> correct?  So the call:
>     r0 = dynamics()->process().shortRate(0.0, x0)
> is requesting the theoretical short rate from time = [0.0, x0] ?

process->x0() returns the value of the underlying variable at time 0.

process->shortRate(t, x) returns the short rate at time t when the state
variable has value x. Thus, process->shortRate(0.0, x0) returns the
short rate at time 0.

Luigi


--

fix, n.,v.
What one does when a problem has been reported too many times
to be ignored.
-- the Jargon file



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