Artikel
Term structure modeling under volatility uncertainty
In this paper, we study term structure movements in the spirit of Heath et al. (Econometrica 60(1):77–105, 1992) under volatility uncertainty. We model the instantaneous forward rate as a diffusion process driven by a G-Brownian motion. The G-Brownian motion represents the uncertainty about the volatility. Within this framework, we derive a sufficient condition for the absence of arbitrage, known as the drift condition. In contrast to the traditional model, the drift condition consists of several equations and several market prices, termed market price of risk and market prices of uncertainty, respectively. The drift condition is still consistent with the classical one if there is no volatility uncertainty. Similar to the traditional model, the risk-neutral dynamics of the forward rate are completely determined by its diffusion term. The drift condition allows to construct arbitrage-free term structure models that are completely robust with respect to the volatility. In particular, we obtain robust versions of classical term structure models.
- Sprache
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Englisch
- Erschienen in
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Journal: Mathematics and Financial Economics ; ISSN: 1862-9660 ; Volume: 16 ; Year: 2021 ; Issue: 2 ; Pages: 317-343 ; Berlin, Heidelberg: Springer
- Klassifikation
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Wirtschaft
Corporate Finance and Governance: General
Asset Pricing; Trading Volume; Bond Interest Rates
- Thema
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Term structure of interest rates
No-arbitrage
Ambiguous volatility
Knightian uncertainty
Model uncertainty
Robust finance
- Ereignis
-
Geistige Schöpfung
- (wer)
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Hölzermann, Julian
- Ereignis
-
Veröffentlichung
- (wer)
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Springer
- (wo)
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Berlin, Heidelberg
- (wann)
-
2021
- DOI
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doi:10.1007/s11579-021-00310-4
- Letzte Aktualisierung
-
10.03.2025, 11:44 MEZ
Datenpartner
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.
Objekttyp
- Artikel
Beteiligte
- Hölzermann, Julian
- Springer
Entstanden
- 2021
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