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Information of Interest


  • Dorje C. Brody

    (Imperial College London)

  • Robyn L. Friedman

    (Imperial College London)


A 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.

Suggested Citation

  • Dorje C. Brody & Robyn L. Friedman, 2009. "Information of Interest," Papers 0905.0072,, revised May 2009.
  • Handle: RePEc:arx:papers:0905.0072

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    References listed on IDEAS

    1. Masayuki Kumon & Akimichi Takemura & Kei Takeuchi, 2005. "Capital process and optimality properties of a Bayesian Skeptic in coin-tossing games," Papers math/0510662,, revised Sep 2008.
    2. Vladimir Vovk, 2007. "Continuous-time trading and emergence of volatility," Papers 0712.1483,, revised Dec 2007.
    3. V. Vovk, 1993. "Forecasting point and continuous processes: Prequential analysis," TEST: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 2(1), pages 189-217, December.
    4. Vladimir Vovk, 2007. "Continuous-time trading and emergence of randomness," Papers 0712.1275,, revised Dec 2007.
    5. Kei Takeuchi & Masayuki Kumon & Akimichi Takemura, 2007. "A new formulation of asset trading games in continuous time with essential forcing of variation exponent," Papers 0708.0275,, revised Jan 2010.
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