Bond Markets Where Prices are Driven by a General Marked Point Process
Posted: 27 Nov 1996
Date Written: November 1995
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.
JEL Classification: G12, G13
Suggested Citation: Suggested Citation