The Potential Approach to the Term Structure of Interest Rates and Foreign Exchange Rates
It is possible to specify a model for interest rates in various ways, by giving the dynamics of the spot rate or of the forward rates, for example. A less well-developed approach is to specify the law of the state-price density process directly. In abstract, the state-price density process is a positive supermartingale, and the theory of Markov processes provides a rich framework for the generation of examples of such things. We show how this can be done, and provide simple examples (some familiar, some new) where prices of derivatives can be computed very easily. One benefit of the potential approach is that it becomes very easy to model the yield curve in many countries at once, together with the exchange rates between them. Copyright Blackwell Publishers Inc. 1997.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 7 (1997)
Issue (Month): 2 ()
|Contact details of provider:|| Web page: http://www.blackwellpublishing.com/journal.asp?ref=0960-1627 |
|Order Information:||Web: http://www.blackwellpublishing.com/subs.asp?ref=0960-1627|
When requesting a correction, please mention this item's handle: RePEc:bla:mathfi:v:7:y:1997:i:2:p:157-176. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.