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- Title
BOND PRICING AND THE TERM STRUCTURE OF INTEREST RATES: A NEW METHODOLOGY FOR CONTINGENT CLAIMS VALUATION.
- Authors
Heath, David; Jarrow, Robert; Morton, Andrew
- Abstract
This paper presents a unifying theory for valuing contingent claims under a stochastic term structure of interest rates. The methodology, based on the equivalent martingale measure technique, takes as given an initial forward rate curve and a family of potential stochastic processes for its subsequent movements. A no arbitrage condition restricts this family of processes yielding valuation formulae for interest rate sensitive contingent claims which do not explicitly depend on the market prices of risk. Examples are provided to illustrate the key results.
- Subjects
BOND prices; INTEREST rates; PRICING; STOCHASTIC analysis; VALUATION; PRICES of securities; BOND market; ECONOMETRICS; MATHEMATICAL models of economics
- Publication
Econometrica, 1992, Vol 60, Issue 1, p77
- ISSN
0012-9682
- Publication type
Article
- DOI
10.2307/2951677