One-Factor Term Structure without Forward Rates

2006/12/01 by Victor Goodman, Goodman, Victor, Kyounghee Kim +1
Economics, Econometrics and Finance · Mathematics · #60H30 #60J65 #91B28 #FOS: Economics and business #FOS: Mathematics #Pricing of Securities (q-fin.PR) #Probability (math.PR) #math.PR #msc:60H30 #msc:60J65 #msc:91B28 #q-fin.PR

paper · pdf · doi:10.48550/arxiv.math/0612035

arxiv created 2006/12/02 · arxiv updated 2009/12/01

Abstract

We construct a no-arbitrage model of bond prices where the long bond is used as a numeraire. We develop bond prices and their dynamics without developing any model for the spot rate or forward rates. The model is arbitrage free and all nominal interest rates remain positive in the model. We give examples where our model does not have a spot rate; other examples include both spot and forward rates.

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