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from Part V - Applications in Financial Economics
Published online by Cambridge University Press: 27 May 2021
This chapter studies interest theory within a jump–diffusion framework. We start by studying short-rate models and affine term structures. We then go on to forward-rate models of HJM type, and for these models we derive the relevant HJM drift condition, guaranteeing the existence of a martingale measure. We also briefly discuss infinite-dimensional SDEs and the Musiela parameterization of the forward-rate curve.
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