Positive Interest
Posted: 13 Sep 1999
Abstract
Using probabilistic methods we derive a complete characterization of the sub-class of HJM models that guarantee positive interest rates. Explicit formulas are given for the conditional zero coupon bond prices in terms of the initial yield curve data and a fundamental family of martingales. It is shown directly that the models so constructed avoid the problem of exploding interest rates.
JEL Classification: E43
Suggested Citation: Suggested Citation
Flesaker, Bjorn and Hughston, Lane P., Positive Interest. Available at SSRN: https://ssrn.com/abstract=6199
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