Interest Rate Theory

1998 ◽  
pp. 245-276
Author(s):  
Nicholas H. Bingham ◽  
Rüdiger Kiesel
Keyword(s):  
Interest Rate ◽  
Rate Theory

Bonds and Interest Rates

2019 ◽  
pp. 257-271
Author(s):  
Tomas Björk
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Rate Theory ◽  
Forward Rates ◽  
Depth Study ◽  
Basic Concepts ◽  
Floating Rate

In this chapter the reader is introduced to the basic concepts of interest rate theory. Starting with a market for zero coupon bonds we define the relevant interest rates such as the short rate, the spot rates, and the forward rates. There is an in-depth study of the relations between the dynamics of these rates, and we also discuss some more applied topics as fixed coupon bonds, floating rate bonds, yields, duration, and convexity.

Interest rate theory and geometry

2010 ◽  
pp. 321-367 ◽  
Author(s):  
Tomas Björk ◽  
Raquel Gaspar
Keyword(s):  
Interest Rate ◽  
Rate Theory

scholarly journals Retrospectives: Edgeworth's Hedonimeter and the Quest to Measure Utility

2007 ◽  
Vol 21 (2) ◽  
pp. 215-225 ◽  
Author(s):  
David Colander
Keyword(s):  
Interest Rate ◽  
Rate Theory ◽  
Backward Induction ◽  
New Developments ◽  
Quantity Theory ◽  
Utility Measurement ◽  
Observed Behavior

In this article, I discuss some earlier debates about the foundations of utility and its measurement, focusing on the contributions of Francis Y. Edgeworth (1845–1926), a famous British economist who was a leader in the development of a more mathematically structured economics in the late 1800s, and Irving Fisher (1867–1947), one of the first quantitative U.S. economists, best-known today for his work on the quantity theory and interest rate theory. Edgeworth argued that utility was directly measurable and that new developments in “physio-psychology” would make it possible to develop a “hedonimeter” that would allow economists to develop a firm physiological underpinning of utility. Fisher, while agreeing with Edgeworth that it was important to have a workable measure of utility, disagreed with Edgeworth about the possibility of doing so with a hedonimeter and, hence, of having any physiological underpinnings of utility. He argued that instead of searching for physiological underpinnings of utility, economists should instead rely upon backward induction from observed behavior to measured utility. Neither of these views about the possibility of utility measurement carried through, and attempts to measure utility were abandoned in the 1930s, when utility measurement and happiness considerations were determined to be outside the purview of economics. Both Edgeworth and Fisher knew that their approaches to utility measurement opened up a Pandora's box of problems; they opened that box, nonetheless, because they felt that theoretical economics had to be relevant to policy, and, to be relevant, it had to face the problems.

Theoretical Identifications of the Market Price of Risk under the Affine Interest Rate Model with Jumps

2005 ◽  
Vol 13 (2) ◽  
pp. 133-143
Author(s):  
Joon Hee Rhee
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Empirical Studies ◽  
Market Price ◽  
Rate Theory ◽  
Rate Model ◽  
Change Of Measure ◽  
Market Price Of Risk ◽  
Price Of Risk ◽  
Interest Rate Model

Any finance models must specify the market prices of risk that determines the relationship between the two probability measures. Although the general form of the change of measure is well known, few papers have investigated the change of measure for interest rate models and their implications for the way a model can fit to empirical facts about the behaviour of interest rates. This paper demonstrates that arbitrary specifications of market price of risk in empirical studies under the two factor affine interest rate model with jumps are not compatible with the theory of original interest rate model. Particularly, the empirical models of Duffee (2002) and Duarte (2003) may be wrong specifications in some parts under a rigorous theoretical interest rate theory.

Fractal Interest Rate Model without Ito Formula

2008 ◽  
Vol 16 (1) ◽  
pp. 21-48
Author(s):  
Joon Hee Rhee
Keyword(s):  
Brownian Motion ◽  
Interest Rate ◽  
Asset Price ◽  
Rate Theory ◽  
Itô Formula ◽  
Rate Model ◽  
Bond Price ◽  
Ito Formula ◽  
Interest Rate Dynamics ◽  
Interest Rate Model

Empirical findings on interest rate dynamics imply that short rates show some long memories and non-Markovian. It is well-known that fractional Brownian motion (IBm) is a proper candidate for modelling this empirical phenomena. IBm. however. is not a semimartingale process. For this reason. it is very hard to apply such processes for asset price modelling. Without using Ito formula, we investigate the IBm interest rate theory‘ We obtain a pure discount bond price. and Greeks by using Malllavin calculus.

Potentials and Positive Interest

2019 ◽  
pp. 317-330
Author(s):  
Tomas Björk
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Potential Theory ◽  
Discount Factor ◽  
Rate Theory ◽  
Stochastic Discount Factor ◽  
Two Alternatives

In this chapter we describe two approaches to interest rate theory which are built on probabilistic potential theory. This approach leads to positive interest rates and there is a nice connection to the stochastic discount factor. We present two alternatives: the Flesaker–Hughston approach, and the Rogers approach.

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