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Term Structure of Interest Rates in the Presence of Levy Jumps: The HJM Approach

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  • Chenghu Ma

    (Department of Accounting, Finance and Management, University of Essex)

Abstract

The aim of this paper is to generalize Heath, Jarrow and Morton (1992, Econometrica) model of the term structure of interest rates within a jumpdiffusion formework. This is achieved by assuming that the forward rate process has a Levy jump component with general jump size distributions. Sufficient conditions are derived under which the no-arbitrage condition implies the existence of a unique martingale measure within the jump-diffusion framework.

Suggested Citation

  • Chenghu Ma, 2003. "Term Structure of Interest Rates in the Presence of Levy Jumps: The HJM Approach," Annals of Economics and Finance, Society for AEF, vol. 4(2), pages 401-426, November.
    • Handle: RePEc:cuf:journl:y:2003:v:4:i:2:p:401-426
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Term structure of interest rates; Martingale measure; Jump-diffusion;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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