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Forward rate dependent Markovian transformations of the Heath-Jarrow-Morton term structure model

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Abstract.

In this paper, a class of forward rate dependent Markovian transformations of the Heath-Jarrow-Morton [16] term structure model are obtained by considering volatility processes that are solutions of linear ordinary differential equations. These transformations generalise the Markovian systems obtained by Carverhill [8], Ritchken and Sankarasubramanian [20], Bhar and Chiarella [1], and Inui and Kijima [18], and also generalise the bond price formulae obtained therein.

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Authors and Affiliations

  1. School of Finance and Economics, University of Technology Sydney, PO Box 123, Broadway, NSW 2007, Australia (e-mail: carl.chiarella@uts.edu.au); (e-mail: ohkang.kwon@uts.edu.au) , , , , , , AU

    Carl Chiarella & Oh Kang Kwon

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  1. Carl Chiarella
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  2. Oh Kang Kwon
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Manuscript received: April 1999; final version received: March 2000

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Chiarella, C., Kwon, O. Forward rate dependent Markovian transformations of the Heath-Jarrow-Morton term structure model. Finance Stochast 5, 237–257 (2001). https://doi.org/10.1007/PL00013533

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  • DOI: https://doi.org/10.1007/PL00013533

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