Abstract
We will now consider the problem where we will model price processes on an arbitrage-free market of zero coupon bonds. On this market we will model the short rate, r(t) under the real probability measure P.
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Notes
- 1.
A better name is the Bond Pricing PDE, since the “Term” T is a fixed time and not a variable.
- 2.
With expectation value, we always refer to the conditional expectation value, the conditional information known up to a certain time. This time is usual today, since we donot know anything about the future!
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Röman, J.R.M. (2017). Term Structures. In: Analytical Finance: Volume II. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-52584-6_12
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DOI: https://doi.org/10.1007/978-3-319-52584-6_12
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Publisher Name: Palgrave Macmillan, Cham
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