Scandinavian Working Papers in Economics

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

No 143: Towards a General Theory of Bond Markets.

Tomas Björk (), Giovanni di Masi, Yuri Kabanov and Wolfgang Runggaldier
Additional contact information
Tomas Björk: Department of Finance, Postal: Stockholm School of Economics, Box 6501, 113 83 Stockholm, Sweden
Giovanni di Masi: Dipartimento di Matematica Pura et Applicata, Postal: Universitá di Padova, Via belzoni 7, 351 31 Padova, Italy
Yuri Kabanov: Laboratoire de Mathématiques, Postal: Université de Franche-Comté, 16 Route de Gray, F-25030 Besançon Cedex France
Wolfgang Runggaldier: Dipartimento di Matematica Pura et Applicata, Postal: Universitá di Padova, Via Belzoni 7, 351 31 Padova, Italy

Abstract: The main purpose of the paper is to provide a mathematical background for the theory of bond markets similar to that available for stock markets. We suggest two constructions of stochastic integrals with respect to processes taking values in a space of continuous functions. Such integrals are used to define the evolution of the value of a portfolio of bonds corresponding to a trading strategy which is a measure- valued predictable process. The existence of an equivalent martingale measure is discussed and HJM-type conditions are derived for a jump-diffusion model. The question of market completeness is considered as a problem of the range of a certain integral operator. We introduce a concept of approximate market completeness and show that a market is approximately complete if an equivalent martingale measure is unique.

Keywords: Bond market; term structure of interest rates; stochastic integral; Banach space-valued integrators; measure-valued portfolio; jump-diffusion model; martingale measure; arbitrage; market completeness

JEL-codes: G12; G13

33 pages, December 1996

Full text files

hastef0143.pdf PDF-file Full text

Download statistics

Published as
Tomas Björk, Giovanni di Masi, Yuri Kabanov and Wolfgang Runggaldier, (1997), 'Towards a General Theory of Bond Markets.', Finance and Stochastics, vol 1, pages 141-174

Questions (including download problems) about the papers in this series should be directed to Helena Lundin ()
Report other problems with accessing this service to Sune Karlsson ().

This page generated on 2024-02-11 18:19:13.