Quantum Field Theory of Treasury Bonds

1998/09/14 by Belal E. Baaquie, Baaquie, Belal E.
Economics, Econometrics and Finance · Physics and Astronomy · #FOS: Economics and business #FOS: Physical sciences #Pricing of Securities (q-fin.PR) #Soft Condensed Matter (cond-mat.soft) #cond-mat.soft #q-fin.PR

paper · pdf · doi:10.48550/arxiv.cond-mat/9809199

29 pages, 4 figures

arxiv created 1998/09/14 · arxiv updated 2009/11/30

Abstract

The Heath-Jarrow-Morton (HJM) formulation of treasury bonds in terms of forward rates is recast as a problem in path integration. The HJM-model is generalized to the case where all the forward rates are allowed to fluctuate independently. The resulting theory is shown to be a two-dimensional Gaussian quantum field theory. The no arbitrage condition is obtained and a functional integral derivation is given for the price of a futures and an options contract.

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