Discount Models
Mathematical Finance
2023-07-28 v2
Abstract
Discount is the difference between the face value of a bond and its present value. I propose an arbitrage-free dynamic framework for discount models, which provides an alternative to the Heath--Jarrow--Morton framework for forward rates. I derive general consistency conditions for factor models, and discuss affine term structure models in particular. There are several open problems, and I outline possible directions for further research.
Cite
@article{arxiv.2306.16871,
title = {Discount Models},
author = {Damir Filipovic},
journal= {arXiv preprint arXiv:2306.16871},
year = {2023}
}