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Title: Kernel-Correlated Levy Field Driven Forward Rate and Application to Derivative Pricing

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.
Authors:
 [1] ;  [2] ;  [3]
  1. Xidian University, Department of Mathematics (China)
  2. Nankai University, School of Business (China)
  3. Nanjing University, School of Management and Engineering (China)
Publication Date:
OSTI Identifier:
22122872
Resource Type:
Journal Article
Resource Relation:
Journal Name: Applied Mathematics and Optimization; Journal Volume: 68; Journal 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)
Country of Publication:
United States
Language:
English
Subject:
97 MATHEMATICAL METHODS AND COMPUTING; GAUSSIAN PROCESSES; INTEREST RATE; KERNELS; POISSON EQUATION; RANDOMNESS