Mathematical Finance (q-fin.MF)
Thu, 29 Jun 2023
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1.Discount Models
Authors:Damir Filipovic
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.