|
EconStor >
Stockholm School of Economics >
EFI - The Economic Research Institute, Stockholm School of Economics >
SSE/EFI Working Paper Series in Economics and Finance, EFI - The Economic Research Institute, Stockholm School of Economics >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/10419/56071
|
| | |
| Title: | | On finite dimensional realizations for the term structure of futures prices  |
| Authors: | | Björk, Tomas Blix, Magnus Landén, Camilla |
| Issue Date: | | 2005 |
| Series/Report no.: | | SSE/EFI Working Paper Series in Economics and Finance 620 |
| Abstract: | | We consider HJM type models for the term structure of futures prices, where the volatility is allowed to be an arbitrary smooth functional of the present futures privce curve. Using a Lie algebraic approach we investigate when the infinite dimensional futures price process can be realized by a finite dimensional Markovian state space model, and we give general necessary and sufficient conditions, in terms of the volatility structure, for the existence of a finite dimensional realization. We study a number of concrefe applications including a recently developed model for gas futures. In particular we provide necessary and sufficient conditions for when the induced spot price is a Markov process. In particular we can prove that the only HJM type futures price models with spot price dependent volatility structures which generically possess a spot price realization are the affine ones. These models are thus the only generic spot price models from a futures price term structure point of view. |
| Subjects: | | futures contract term structure Lie algebra finite dimensional realisation |
| JEL: | | G13 |
| Document Type: | | Working Paper |
| Appears in Collections: | | SSE/EFI Working Paper Series in Economics and Finance, EFI - The Economic Research Institute, Stockholm School of Economics
|
| |
| | |
Download bibliographical data as:
BibTeX
|
| |
Share on:http://hdl.handle.net/10419/56071
|
Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.
|