Liquidity risk and the term structure of interest rates (Q2018551)
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scientific article; zbMATH DE number 6419179
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| English | Liquidity risk and the term structure of interest rates |
scientific article; zbMATH DE number 6419179 |
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Liquidity risk and the term structure of interest rates (English)
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24 March 2015
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The authors study liquidity risk for fixed income securities. Their main objective is to develop a model for the pricing and hedging of interest rate derivatives when the trades of an agent has a quantity impact on the term structure of the bond price. Sufficient conditions for the term structure evolution to be arbitrage free are provided related to both the risk premia and the term structure volatility. Also, conditions under which the market is complete are provided. The authors show that replication costs of the interest rate derivative are solutions to a backward stochastic differential equation.
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liquidity risk
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fixed income markets
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completeness
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no arbitrage
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0.88216066
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0.87417847
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0.86883545
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