A heat kernel approach to interest rate models

DOI10.1007/S13160-014-0147-3zbMATH Open1304.35313arXiv0910.5033OpenAlexW1583519071MaRDI QIDQ403855FDOQ403855

Authors: Jirô Akahori, Yuji Hishida, Josef Teichmann, Takahiro Tsuchiya 

Publication date: 29 August 2014

Published in: Japan Journal of Industrial and Applied Mathematics (Search for Journal in Brave)

Abstract: We construct default-free interest rate models in the spirit of the well-known Markov funcional models: our focus is analytic tractability of the models and generality of the approach. We work in the setting of state price densities and construct models by means of the so called propagation property. The propagation property can be found implicitly in all of the popular state price density approaches, in particular heat kernels share the propagation property (wherefrom we deduced the name of the approach). As a related matter, an interesting property of heat kernels is presented, too.

Full work available at URL: https://arxiv.org/abs/0910.5033

Recommendations

• Heat kernel models for asset pricing
• Markov-functional interest rate models
• Markov interest rate models

zbMATH Keywords

state price densityMarkov-functional

Mathematics Subject Classification ID

PDEs in connection with game theory, economics, social and behavioral sciences (35Q91) Continuous-time Markov processes on general state spaces (60J25) Heat kernel (35K08) PDEs with randomness, stochastic partial differential equations (35R60)

Cites Work

• Financial Modelling with Jump Processes
• Title not available (Why is that?)
• Bond Pricing and the Term Structure of Interest Rates: A New Methodology for Contingent Claims Valuation
• Interest rate models -- theory and practice. With smile, inflation and credit
• The Potential Approach to the Term Structure of Interest Rates and Foreign Exchange Rates
• Interest Rate Option Pricing With Poisson‐Gaussian Forward Rate Curve Processes
• A chaotic approach to interest rate modelling
• What is the natural scale for a Lévy process in modelling term structure of interest rates?
• LIFTING QUADRATIC TERM STRUCTURE MODELS TO INFINITE DIMENSION
• ONE FOR ALL The Potential Approach to Pricing and Hedging
• Wiener chaos and the Cox–Ingersoll–Ross model
• Markov-functional interest rate models

Cited In (6)

• The affine rational potential model
• Rational multi-curve models with counterparty-risk valuation adjustments
• Heat kernel models for asset pricing
• Generalizations of Ho-Lee's binomial interest rate model II: randomization
• Polynomial term structure models
• Randomised mixture models for pricing kernels

This page was built for publication: A heat kernel approach to interest rate models

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q403855)