Martingale Models for the Short Rate

Tomas Björk

in Arbitrage Theory in Continuous Time

Published in print September 1998 | ISBN: 9780198775188
Published online November 2003 | e-ISBN: 9780191595981 | DOI:
 Martingale Models for the Short Rate

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This chapter introduces the concept of martingale modelling of the short rate. We discuss the standard short rate models and derive the corresponding bond and option prices. In particular, we present the theory of affine term structures.

Keywords: affine term structures; bonds; interest rates; martingale; options; risk neutral valuation; short rate; term structure

Chapter.  6635 words.  Illustrated.

Subjects: Financial Markets

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