Finance Discipline Group
UTS Business School
University of Technology, Sydney

Working Paper Series

Approximating Heath-Jarrow-Morton Non-Markovian Term Structure of Interest Rate Models with Markovian Systems
Author(s): Ram Bhar & Carl Chiarella
Date of publication: September 2000
Working paper number: 76
We consider a Heath-Jarrow-Morton models for the term structure of interest rates in which the forward rate volatility is a function of the instantaneous spot rate of interest, a set of dicrete forward rates and time to maturity of the bond. We show how the stochastic dynamics may be expressed as a system of Markovian stochastic differential equations. We obtain the partial differential equation which allows the pricing of contingent claims in this framework.
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Known citations: Zyapkov, L., 2007, Zeit- und Volatilitätsstruktur von Zinssätzen – Modellierung, Implementierung, Kalibrierung, PhD Thesis. University of Goettingen.