IDEAS home Printed from
   My bibliography  Save this paper

Pricing Fixed-Income Securities in an Information-Based Framework


  • Lane P. Hughston

    () (Department of Mathematics, Imperial College)

  • Andrea Macrina

    () (Department of Mathematics, King's College London, Institute of Economic Research, Kyoto University)


In this paper we introduce a class of information-based models for the pricing of fixed-income securities. We consider a set of continuous- time information processes that describe the flow of information about market factors in a monetary economy. The nominal pricing kernel is at any given time assumed to be given by a function of the values of information processes at that time. By use of a change-of-measure technique we derive explicit expressions for the price processes of nom- inal discount bonds, and deduce the associated dynamics of the short rate of interest and the market price of risk. The interest rate positiv- ity condition is expressed as a differential inequality. We proceed to the modelling of the price-level, which at any given time is also taken to be a function of the values of the information processes at that time. A simple model for a stochastic monetary economy is introduced in which the prices of nominal discount bonds and inflation-linked notes can be expressed in terms of aggregate consumption and the liquidity benefit generated by the money supply.

Suggested Citation

  • Lane P. Hughston & Andrea Macrina, 2010. "Pricing Fixed-Income Securities in an Information-Based Framework," KIER Working Papers 692, Kyoto University, Institute of Economic Research.
  • Handle: RePEc:kyo:wpaper:692

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Henderson, J V, 1974. "The Sizes and Types of Cities," American Economic Review, American Economic Association, vol. 64(4), pages 640-656, September.
    2. Tomoya Mori & Tony E. Smith, 2009. "A Reconsideration of the NAS Rule from an Industrial Agglomeration Perspective," KIER Working Papers 669, Kyoto University, Institute of Economic Research.
    3. Takatoshi Tabuchi & Jacques-François Thisse, 2006. "Regional Specialization, Urban Hierarchy, And Commuting Costs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(4), pages 1295-1317, November.
    4. Tomoya Mori & Koji Nishikimi & Tony E. Smith, 2005. "A Divergence Statistic for Industrial Localization," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 635-651, November.
    5. Fujita, Masahisa & Krugman, Paul & Mori, Tomoya, 1999. "On the evolution of hierarchical urban systems1," European Economic Review, Elsevier, vol. 43(2), pages 209-251, February.
    6. Tomoya Mori & Tony E. Smith, 2014. "A probabilistic modeling approach to the detection of industrial agglomerations," Journal of Economic Geography, Oxford University Press, vol. 14(3), pages 547-588.
    7. Tomoya Mori & Koji Nishikimi & Tony E. Smith, 2008. "The Number-Average Size Rule: A New Empirical Relationship Between Industrial Location And City Size," Journal of Regional Science, Wiley Blackwell, vol. 48(1), pages 165-211.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Gabriele Sarais & Damiano Brigo, 2014. "Inflation securities valuation with macroeconomic-based no-arbitrage dynamics," Papers 1403.7799,, revised Jul 2014.

    More about this item


    Fixed-income securities; interest rate theory; inflation; inflation-linked securities; non-linear filtering; incomplete information;

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kyo:wpaper:692. 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: (Ryo Okui). General contact details of provider: .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.