Kernel-Correlated Levy Field Driven Forward Rate and Application to Derivative Pricing
Journal Article
·
· Applied Mathematics and Optimization
- Xidian University, Department of Mathematics (China)
- Nankai University, School of Business (China)
We propose a term structure of forward rates driven by a kernel-correlated Levy random field under the HJM framework. The kernel-correlated Levy random field is composed of a kernel-correlated Gaussian random field and a centered Poisson random measure. We shall give a criterion to preclude arbitrage under the risk-neutral pricing measure. As applications, an interest rate derivative with general payoff functional is priced under this pricing measure.
- OSTI ID:
- 22122872
- Journal Information:
- Applied Mathematics and Optimization, Vol. 68, Issue 1; Other Information: Copyright (c) 2013 Springer Science+Business Media New York; http://www.springer-ny.com; Country of input: International Atomic Energy Agency (IAEA); ISSN 0095-4616
- Country of Publication:
- United States
- Language:
- English
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