On the Term Structure of Futures and Forward Prices
We investigate the term structure of forward and futures prices for models where the price processes are allowed to be driven by a general marked point process as well as by a multidimensional Wiener process. Within an infinite dimensional HJM-type model for futures and forwards we study the properties of futures and forward convenience yield rates. For finite dimensional factor models, we develop a theory of affine term structures, which is shown to include almost all previously known models. We also derive two general pricing formulas for futures options. Finally we present an easily applicable sufficient condition for the possibility of fitting a finite dimensional futures price model to an arbitrary initial futures price curve, by introducing a time dependent function in the drift term.
|Date of creation:||08 Dec 2000|
|Date of revision:||20 Dec 2000|
|Publication status:||Published in Mathematical Finance - Bachelier Congress 2000, Geman, Helyette, Madan, Dilip, Pliska, Stanley, Vorst, Ton (eds.), 2002, pages 111-150, Springer Verlag.|
|Contact details of provider:|| Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden|
Phone: +46-(0)8-736 90 00
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Web page: http://www.hhs.se/
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- Darrell Duffie & Rui Kan, 1996. "A Yield-Factor Model Of Interest Rates," Mathematical Finance, Wiley Blackwell, vol. 6(4), pages 379-406.
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- Gibson, Rajna & Schwartz, Eduardo S, 1990. " Stochastic Convenience Yield and the Pricing of Oil Contingent Claims," Journal of Finance, American Finance Association, vol. 45(3), pages 959-76, July.
- Hilliard, Jimmy E. & Reis, Jorge, 1998. "Valuation of Commodity Futures and Options under Stochastic Convenience Yields, Interest Rates, and Jump Diffusions in the Spot," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 33(01), pages 61-86, March.
- Tomas Björk & Yuri Kabanov & Wolfgang Runggaldier, 1997. "Bond Market Structure in the Presence of Marked Point Processes," Mathematical Finance, Wiley Blackwell, vol. 7(2), pages 211-239.
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