Publication:5072617

DOI10.1142/9789811246494_0005zbMATH Open1486.91084arXiv0905.0072OpenAlexW4214623324MaRDI QIDQ5072617FDOQ5072617

Dorje C. Brody, Robyn L. Friedman

Publication date: 29 April 2022

Published in: Financial Informatics (Search for Journal in Brave)

Abstract: A pricing formula for discount bonds, based on the consideration of the market perception of future liquidity risk, is established. An information-based model for liquidity is then introduced, which is used to obtain an expression for the bond price. Analysis of the bond price dynamics shows that the bond volatility is determined by prices of certain weighted perpetual annuities. Pricing formulae for interest rate derivatives are derived.

Full work available at URL: https://arxiv.org/abs/0905.0072

Mathematics Subject Classification ID

Interest rates, asset pricing, etc. (stochastic models) (91G30)

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