Economics at your fingertips  

Long-term factorization in Heath–Jarrow–Morton models

Likuan Qin () and Vadim Linetsky ()
Additional contact information
Likuan Qin: Northwestern University
Vadim Linetsky: Northwestern University

Finance and Stochastics, 2018, vol. 22, issue 3, 621-641

Abstract: Abstract The long-term factorization decomposes the stochastic discount factor (SDF) into discounting at the rate of return on the long bond and a martingale that defines a long-term forward measure. We establish sufficient conditions for existence of the long-term factorization in HJM models. A condition on the forward rate volatility ensures existence of the long bond volatility. This yields existence of the long bond and convergence of T $T$ -forward measures to the long forward measure. It contrasts with the familiar risk-neutral factorization that decomposes the SDF into discounting at the short rate and a martingale defining the risk-neutral measure.

Keywords: Stochastic discount factor; Long-term factorization; Long bond; Long forward measure; HJM models; 60H15 (search for similar items in EconPapers)
JEL-codes: E43 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from
http://www.springer. ... ance/journal/780/PS2

DOI: 10.1007/s00780-018-0365-7

Access Statistics for this article

Finance and Stochastics is currently edited by M. Schweizer

More articles in Finance and Stochastics from Springer
Bibliographic data for series maintained by Sonal Shukla ().

Page updated 2020-04-23
Handle: RePEc:spr:finsto:v:22:y:2018:i:3:d:10.1007_s00780-018-0365-7