Hypoellipticity in infinite dimensions and an application in interest rate theory (Q2572392): Difference between revisions

Methods from Malliavin calculus are applied to prove an infinite-dimensional version of the Hörmander theorem for stochastic evolution equations of the Da Prato-Zabczyk type. This result is used to show that the HJM-equations from interest rate theory have the economically undesirable feature that any selection of finitely many linearly independent linear functionals of the interest rate curve, such as e.g. yields, admits a density as a multi-dimensional random variable. Thus, any shape of the forward rate curve is destroyed with positive probability. The paper gives a clear exposition of the infinite calculus needed in these considerations.