SSE/EFI Working Paper Series in Economics and Finance
On the Term Structure of Futures and Forward Prices
() and Camilla Landen
Abstract: 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.
Keywords: term structure; futures price; forward price; options; jump-diffusion model; affine term structure; (follow links to similar papers)
JEL-Codes: E43; G13; (follow links to similar papers)
40 pages, December 8, 2000, Revised December 20, 2000
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- This paper is published as:
Björk, Tomas and Camilla Landen, (2002), 'On the Term Structure of Futures and Forward Prices' in Geman, Helyette, Dilip Madan, Stanley Pliska and Ton Vorst (eds.) Mathematical Finance - Bachelier Congress 2000, pages 111-150, Springer Verlag.
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