2009/10/27 by Jiro Akahori, Jirô Akahori, Yuji Hishida +6
Economics, Econometrics and Finance · Mathematics · #Computational Finance (q-fin.CP) #FOS: Economics and business #Markov Chains and Monte Carlo Methods #Mathematical Dynamics and Fractals #Pricing of Securities (q-fin.PR) #Stochastic processes and financial applications #q-fin.CP #q-fin.PR
paper · pdf · doi:10.48550/arxiv.0910.5033
arxiv created 2009/10/27 · openalex publication_date 2009/10/27 · arxiv updated 2009/12/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
We construct default-free interest rate models in the spirit of the well-known Markov funcional models: our focus is analytic tractability of the models and generality of the approach. We work in the setting of state price densities and construct models by means of the so called propagation property. The propagation property can be found implicitly in all of the popular state price density approaches, in particular heat kernels share the propagation property (wherefrom we deduced the name of the approach). As a related matter, an interesting property of heat kernels is presented, too.