Cylindrical stochastic integration and applications to financial term structure modeling

Johannes Assefa and Philipp Harms

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Abstract: We develop a novel - cylindrical - solution concept for stochastic evolution equations. Our motivation is to establish a Heath-Jarrow-Morton framework capable of analysing financial term structures with discontinuities, overcoming deep stochastic-analytic limitations posed by mild or weak solution concepts. Our cylindrical approach, which we investigate in full generality, bypasses these difficulties and nicely mirrors the structure of a large financial market.

Date: 2022-08, Revised 2023-05
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