Abstract
We develop a class of rational term structure models in the framework of the potential approach, based upon a family of positive supermartingales that are driven by an affine Markov process. These models generally feature non-negative interest rates and analytic pricing formulae for zero bonds, caps, swaptions, and European currency options, even in the presence of multiple factors. Moreover, in a model specification, the short rate stays near the zero lower bound for an extended period.
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