(), Giovanni di Masi
, Yuri Kabanov
and Wolfgang Runggaldier
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
33 pages, December 1996
Full text files
hastef0143.pdf Full text
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 2018-03-27 10:24:40.