Discount models

Damir Filipović ()
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Damir Filipović: EPFL and Swiss Finance Institute

Finance and Stochastics, 2023, vol. 27, issue 4, No 5, 933-946

Abstract: Abstract Discount is the difference between the face value of a bond and its present value. We propose an arbitrage-free dynamic framework for discount models, which provides an alternative to the Heath–Jarrow–Morton framework for forward rates. We derive general consistency conditions for factor models, and discuss affine term structure models in particular. There are several open problems, and we outline possible directions for further research.

Keywords: Discount; Factor models; Stochastic partial differential equation; Term structure models; Zero-coupon bonds; 91B70; 91G20; 91G30 (search for similar items in EconPapers)
JEL-codes: C32 G12 G13 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s00780-023-00514-0

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