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Bond markets where prices are driven by a general marked point process
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Bond markets where prices are driven by a general marked point process

Tomas Björk, Yuri Kabanov and Wolfgang Runggaldier
Vol.1995(88)
SSE/EFI Working Paper Series in Economics and Finance, 88, Stockholm School of Economics (SSE)
1995

Abstract

term structure of interest rates arbitrage bond markets interest rates martingales jump processes completeness affine term structure G12 G13
We investigate the term structure for the case when interest rates are allowed to be driven by a general marked point process as well as by a Wiener process. Developing a theory which allows for measure-valued trading portfolios we study existence and uniqueness of a martingale measure, as well as completeness of the bond market. We also give sufficient conditions for the existence of an affine term structure. Developing the appropriate forward measures we give formulas for interest rate derivatives.
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