Applied Mathematics & Optimization

, Volume 68, Issue 1, pp 21–41 | Cite as

Kernel-Correlated Lévy Field Driven Forward Rate and Application to Derivative Pricing

  • Lijun Bo
  • Yongjin Wang
  • Xuewei Yang


We propose a term structure of forward rates driven by a kernel-correlated Lévy random field under the HJM framework. The kernel-correlated Lévy random field is composed of a kernel-correlated Gaussian random field and a centered Poisson random measure. We shall give a criterion to preclude arbitrage under the risk-neutral pricing measure. As applications, an interest rate derivative with general payoff functional is priced under this pricing measure.


Forward interest rate Kernel-correlated Lévy field HJM model Derivative pricing 



The authors would like to thank the two reviewers for their valuable comments and suggestions that greatly improve the manuscript.


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© Springer Science+Business Media New York 2013

Authors and Affiliations

  1. 1.Department of MathematicsXidian UniversityXi’anChina
  2. 2.School of BusinessNankai UniversityTianjinChina
  3. 3.School of Management and EngineeringNanjing UniversityNanjingChina

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