Information of Interest
AbstractA pricing formula for discount bonds, based on the consideration of the market perception of future liquidity risk, is established. An information-based model for liquidity is then introduced, which is used to obtain an expression for the bond price. Analysis of the bond price dynamics shows that the bond volatility is determined by prices of certain weighted perpetual annuities. Pricing formulae for interest rate derivatives are derived.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 0905.0072.
Date of creation: May 2009
Date of revision: May 2009
Publication status: Published in Risk Magazine, December 2009, 105-110
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-09-26 (All new papers)
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