Entropy and information in the interest rate term structure
AbstractAssociated with every positive interest term structure there is a probability density function over the positive half-line. This fact can be used to turn the problem of term structure analysis into a problem in the comparison of probability distributions, an area well developed in statistics, known as information geometry. The information-theoretic and geometric aspects of term structures thus arising are here illustrated. In particular, we introduce a new term structure calibration methodology based on maximization of entropy, and also present some new families of interest rate models arising naturally in this context.
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Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Quantitative Finance.
Volume (Year): 2 (2002)
Issue (Month): 1 ()
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