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dc.contributor.authorGaspar, Raquel M.en_US
dc.description.abstractIn this paper we study a fairly general Wiener driven model for the term structure of forward prices. The model, under a fixed martingale measure, Q, consists of two infinite dimensional stochastic differential equations (SDEs). The first system is a standard HJM model for (forward) interest rates, driven by a multidimensional Wiener process W. The second system is an infinite SDE for the term structure of forward prices on some specified underlying asset driven by the same W. We are primarily interested in the forward prices. However, since for any fixed maturity, T, the forward price process is a martingale under the T-forward neutral measure, the zero coupon bond volatilities will enter into the drift part of the SDE for these forward prices. The interest rate system is, thus, needed as input into the forward price system. Given this setup we use the Lie algebra methodology of Björk et al. to investigate under what conditions on the volatility structure of the forward prices and/or interest rates, the inherently (doubly) infinite dimensional SDE for forward prices can be realized by a finite dimensional Markovian state space model.en_US
dc.publisher|aEkonomiska Forskningsinst. |cStockholmen_US
dc.relation.ispartofseries|aSSE/EFI Working Paper Series in Economics and Finance |x569en_US
dc.subject.keywordForward pricesen_US
dc.subject.keywordterm structuresen_US
dc.subject.keywordstate space modelsen_US
dc.subject.keywordMarkovian realizationsen_US
dc.subject.keywordHJM modelsen_US
dc.subject.stwMarkovscher Prozessen_US
dc.subject.stwStochastischer Prozessen_US
dc.titleFinite dimensional realizations of forward price term structure modelsen_US
dc.typeWorking Paperen_US

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