Discount Models

Damir Filipović
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Damir Filipović: Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute

No 23-34, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

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

Pages: 12 pages
Date: 2023-06
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2334

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