Term Structure Models with Parallel and Proportional Shifts

Frederik Armerin (), Tomas Bjork and Bjarne Astrup Jensen ()
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Frederik Armerin: Department of Mathematics, Postal: Royal Institute of Technology, SE-100 44 Stockholm, SWEDEN
Bjarne Astrup Jensen: Department of Finance, Copenhagen Business School, Postal: Department of Finance, Copenhagen Business School, Solbjerg Plads 3, A5, DK-2000 Frederiksberg, Denmark

No 2005-5, Working Papers from Copenhagen Business School, Department of Finance

Abstract: We investigate the possibility of an arbitrage free model for the term structure of interest rates where the yield curve only changes through a parallel shift. We consider HJM type forward rate models driven by a multidimensionalWiener process as well as by a general marked point process. Within this general framework we show that there does indeed exist a large variety of nontrivial parallel shift term structure models, and we also describe these in detail. We also show that there exists no nontrivial flat term structure model. The same analysis is repeated for the similar case, where the yield curve only changes through proportional shifts.

Keywords: bond market; term structure of interest rates; flat term structures (search for similar items in EconPapers)
JEL-codes: G00 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2005-10-26
Note: Forthcoming in Applied Mathematical Finance
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Published in Applied Mathematical Finance , 2007, pages 243-260.

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Journal Article: Term Structure Models with Parallel and Proportional Shifts (2007)
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