In this paper, we build the arbitrage-free term structure model on the inflation rate, and discuss the relations between the arbitrage-free term structure and the equivalent martingale measure. The volatility terms of...In this paper, we build the arbitrage-free term structure model on the inflation rate, and discuss the relations between the arbitrage-free term structure and the equivalent martingale measure. The volatility terms of diffusion processes of the real forward interest rate, the nominal forward interest rate and the inflation index （Jarrow and Yildirim, 2003） are extended into many dimensional Brownian motions. Moreover, as we derive the differential equations of three-factor term structure, our results are generalized. At last, the analytic solutions of European option can be deduced on the inflation rate.展开更多
基金This work is supported by National Natural Science Foundation of China （70372011） and the Youth Teacher Foundation of Beijing University of Chemical Technology （QN0521）
文摘In this paper, we build the arbitrage-free term structure model on the inflation rate, and discuss the relations between the arbitrage-free term structure and the equivalent martingale measure. The volatility terms of diffusion processes of the real forward interest rate, the nominal forward interest rate and the inflation index （Jarrow and Yildirim, 2003） are extended into many dimensional Brownian motions. Moreover, as we derive the differential equations of three-factor term structure, our results are generalized. At last, the analytic solutions of European option can be deduced on the inflation rate.
