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Arbitrage Theory in Continuous Time$
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Tomas Björk

Print publication date: 2004

Print ISBN-13: 9780199271269

Published to Oxford Scholarship Online: October 2005

DOI: 10.1093/0199271267.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 22 October 2021

Short Rate Models

Short Rate Models

(p.316) 21 Short Rate Models
Arbitrage Theory in Continuous Time

Tomas Björk (Contributor Webpage)

Oxford University Press

This chapter examines the problem of how to model an arbitrage free family of zero coupon bond price processes. It assumes a market for T-bonds for every choice of T, and that the market is arbitrage free. For every T, the price of a T-bond has the form p (t, T) = F (t, r, (t) ; T), where F is a smooth function of three real variables. Practice exercises are included.

Keywords:   zero coupon bond, price, arbitrage short rate models, bond market, interest

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