Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 88: Bond markets where prices are driven by a general marked point process

T. Björk (), Y. Kabanov and W. Runggaldier
Additional contact information
T. Björk: Department of Finance, Postal: Stockholm School of Economics, Box 6501, 113 83 Stockholm, Sweden.
Y. Kabanov: Laboratoire de Mathematiques, Postal: Université de Franche-Comte, 16 Route de Gray, F- 25030 Besancon Cedex FRANCE
W. Runggaldier: Dipartimento di Matematica Pura e Applicata, Postal: Università di Padova, Via Belzoni 7, 35131 Padova, ITALY

Abstract: We investigate the term structure for the case when interest rates are allowed to be driven by a general marked point process as well as by a Wiener process. Developing a theory which allows for measure-valued trading portfolios we study existence and uniqueness of a martingale measure, as well as completeness of the bond market. We also give sufficient conditions for the existence of an affine term structure. Developing the appropriate forward measures we give formulas for interest rate derivatives.

Keywords: Term structure of interest rates; arbitrage; bond markets; interest rates; martingales; jump processes; completeness; affine term structure

JEL-codes: G12; G13

64 pages, December 1995

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Published as
T. Björk, Y. Kabanov and W. Runggaldier, (1997), 'Bond market structure in the presence of marked point processes', Mathematical Finance, vol 7, pages 211-239

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