Phys. Rev. E 64, 016121 (2001) [16 pages]Quantum field theory of treasury bondsReceived 20 September 2000; revised 12 February 2001; published 22 June 2001 The Heath-Jarrow-Morton (HJM) formulation of treasury bonds in terms of forward rates is recast as a problem in path integration. The HJM model is generalized to the case where all the forward rates are allowed to fluctuate independently. The resulting theory is shown to be a two-dimensional Gaussian quantum field theory. The no arbitrage condition is obtained and a functional integral derivation is given for the price of a futures and an options contract. © 2001 The American Physical Society URL:
http://link.aps.org/doi/10.1103/PhysRevE.64.016121
DOI:
10.1103/PhysRevE.64.016121
PACS:
02.50.-r, 05.40.-a
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