The Term Structure of Interest Rates as a Random Field: a Stochastic Integration Approach

Marzia De Donno

Chapter 2 in Stochastic Processes and Applications to Mathematical Finance, 2004, pp 27-52 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractWe investigate the term structure of zero coupon bonds, in the case where the forward rate evolves as a Wiener sheet. We introduce a definition of stochastic integral with respect to a continuous semimartingale with values in the set of continuous functions and characterize the dynamics of the zero coupon bonds. We also define a notion of generalized strategy, in order to admit the (theoretical) possibility of investing in a continuum of bonds. Finally we study the problem of utility maximization from terminal wealth in this setting and deduce a "mutual fund" theorem.

Keywords: Stochastic Processes; Stochastic Differential Equations; Malliavin Calculus; Stochastic Control and Optimization; Functionals of Brownian Motions and Lévy Processes; Stochastic Models of Financial Market; Derivative Pricing; Hedging Problem (search for similar items in EconPapers)
Date: 2004
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