Abstract

We study the stochastic flow method and Forward-backward Stochastic Differential Equation (FBSDE) approach to the Quadratic Term Structure Models (QTSMs). Applying the stochastic flow approach, we get a closed form solution for the zero-coupon bond price under a one-dimensional QTSM. However, in the higher dimensional cases, the stochastic flow approach is difficult to implement. Therefore, we solve the n -dimensional QTSMs by implementing the FBSDE approach, which shows that the zero-coupon bond price under QTSM provided some Riccati type equations have global solutions.