Discount models

DOI10.1007/S00780-023-00514-0MaRDI QIDQ6074009zbMATHOpenAlexFDO

Authors

Publication date 12 October 2023

Published in Finance and Stochastics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/2306.16871

zbMATH Keywords

factor modelsstochastic partial differential equationdiscountzero-coupon bondsterm structure models

Mathematics Subject Classification ID

Stochastic partial differential equations (aspects of stochastic analysis) (60H15) Interest rates, asset pricing, etc. (stochastic models) (91G30)

Abstract: Discount is the difference between the face value of a bond and its present value. I propose an arbitrage-free dynamic framework for discount models, which provides an alternative to the Heath--Jarrow--Morton framework for forward rates. I derive general consistency conditions for factor models, and discuss affine term structure models in particular. There are several open problems, and I outline possible directions for further research.

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Cites work

• Arbitrage Theory in Continuous Time
• Bond Pricing and the Term Structure of Interest Rates: A New Methodology for Contingent Claims Valuation
• Consistency problems for Heath-Jarrow-Morton interest rate models
• On the uniqueness of solutions of stochastic differential equations
• Polynomial diffusions and applications in finance
• Stochastic Equations in Infinite Dimensions
• Term-structure models. A graduate course
• Unspanned stochastic volatility in the multifactor CIR model

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