Interest Rate Theory and Geometry

Bjork, Tomas; Gaspar, Raquel M.

Interest Rate Theory and Geometry

Portugaliae Mathematica, Vol. 67, No. 3, pp. 321-367, 2010

43 Pages Posted: 10 Dec 2010

See all articles by Tomas Bjork

Tomas Bjork

Stockholm School of Economics - Swedish House of Finance

Raquel M. Gaspar

ISEG and Cemapre, Universidade de Lisboa

Date Written: 2010

Abstract

In this paper we provide an overview of some basic topics in interest rate theory, from the point of view of arbitrage free pricing. We cover short rate models, affine term structure models, inversion of the yield curve and the Musiela parameterization. We treat geometric interest rate theory in some detail, and we also review the potential approach to positive interest rates.

Keywords: Interest Rate Models, Arbitrage Theory, Stochastic Processes, Martingales,PDEs, ODEs, Manifolds, Potentials, Finite Dimensional Realizations

Suggested Citation: Suggested Citation

Bjork, Tomas and Gaspar, Raquel M., Interest Rate Theory and Geometry (2010). Portugaliae Mathematica, Vol. 67, No. 3, pp. 321-367, 2010. Available at SSRN: https://ssrn.com/abstract=1722716