General Quadratic Term Structures of Bond, Futures and Forward Prices

Raquel Gaspar

No 559, SSE/EFI Working Paper Series in Economics and Finance from Stockholm School of Economics

Abstract: For finite dimensional factor models, the paper studies general quadratic term structures. These term structures include as special cases the affine term structures and the Gaussian quadratic term structures, previously studied in the literature. We show, however, that there are other, non-Gaussian, quadratic term structures and derive sufficient conditions for the existence of these general quadratic term structures for bond, futures and forward prices. As forward prices are martingales under the T-forward measure, their term structure equation depends on properties of bond prices' term structure. We exploit the connection with the bond prices term structure and show that even in quadratic short rate settings we can have affine term structures for forward prices. Finally, we show how the study of futures prices is naturally embedded in a study of forward prices and show that the difference between the two prices have to do with the correlation between bond prices and the price process of the underlying to the forward contract and this difference may be deterministic in some (non-trivial) stochastic interest rate settings.

Keywords: term structure; bond price; futures price; forward price; affine term structure; quadratic term structure (search for similar items in EconPapers)
JEL-codes: E43 G13 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2004-03-30
New Economics Papers: this item is included in nep-cfn, nep-fin, nep-fmk and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:hhs:hastef:0559

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