Economy – Quantitative Finance – Pricing of Securities
Scientific paper
2010-05-20
Finite and infinite dimensional analysis in honor of Leonard Gross (New Orleans, LA, 2001), 37-44, Contemp. Math., 317, Amer.
Economy
Quantitative Finance
Pricing of Securities
7 pages, 5/9 papers from my 2000-2006 collection (preprint version)
Scientific paper
No-arbitrage models of term structure have the feature that the return on zero-coupon bonds is the sum of the short rate and the product of volatility and market price of risk. Well known models restrict the behavior of the market price of risk so that it is not dependent on the type of asset being modeled. We show that the models recently proposed by Goldstein and Santa-Clara and Sornette, among others, allow the market price of risk to depend on characteristics of each asset, and we quantify this dependence. A key tool in our analysis is a very general space-time change of measure theorem, proved by the first author in earlier work, and covers continuous orthogonal local martingale measures including space-time white noise.
Allouba Hassan
Goodman Victor
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