Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/142545
Authors: 
Yassine, El Qalli
Year of Publication: 
2009
Series/Report no.: 
EERI Research Paper Series 13/2009
Abstract: 
This paper makes use of an integrated benchmark modeling framework that allows us to derive term structure equations for bond and forward prices. The benchmark or numeraire is chosen to be the growth optimal portfolio (GOP). For deterministic short rate the solution of the bond term structure equation coincides with the explicit formula obtained in Platen(2005). The resulting term structure equations are used to explain moves in bond and forward prices by introducing GOP as a factor and therefore constructing a hedge portfolio for bond consisting of units of the GOP and the saving account. The paper also derives an affine term structure equation for forward price in term of the GOP factor. In the case of stochastic short rate we restrict our selves to give only a term structure equation for the bond price.
Subjects: 
Term structure
Benchmark approach
GOP
Forward price
bond
JEL: 
E43
G13
Document Type: 
Working Paper

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