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Dorje C. Brody and Robyn L. Friedman
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Dorje C. Brody: Imperial College London
Robyn L. Friedman: Imperial College London

Papers from arXiv.org

Abstract: A pricing formula for discount bonds, based on the consideration of the market perception of future liquidity risk, is established. An information-based model for liquidity is then introduced, which is used to obtain an expression for the bond price. Analysis of the bond price dynamics shows that the bond volatility is determined by prices of certain weighted perpetual annuities. Pricing formulae for interest rate derivatives are derived.

Date: 2009-05, Revised 2009-05
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Published in Risk Magazine, December 2009, 105-110

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:0905.0072

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