Bond Pricing under Knightian Uncertainty. A Short Rate Model with Drift and Volatility Uncertainty

Hölzermann J (2018) Center for Mathematical Economics Working Papers; 582.
Bielefeld: Center for Mathematical Economics.

Diskussionspapier | Veröffentlicht | Englisch
 
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Abstract / Bemerkung
It is shown how to construct an arbitrage-free short rate model under uncertainty about the drift and the volatility. The uncertainty is represented by a set of priors, which naturally leads to a G-Brownian motion. Within this framework, it is shown how to characterize the whole term structure without admitting arbitrage. The pricing of zero-coupon bonds in such a setting differs substantially from the traditional models, since the prices need to be chosen in a different way in order to exclude arbitrage.
Stichworte
Robust Finance; Knightian Uncertainty; Short Rate Model; No-Arbitrage
Erscheinungsjahr
2018
Band
582
Seite(n)
23
ISSN
0931-6558
Page URI
https://pub.uni-bielefeld.de/record/2930378

Zitieren

Hölzermann J. Bond Pricing under Knightian Uncertainty. A Short Rate Model with Drift and Volatility Uncertainty. Center for Mathematical Economics Working Papers. Vol 582. Bielefeld: Center for Mathematical Economics; 2018.
Hölzermann, J. (2018). Bond Pricing under Knightian Uncertainty. A Short Rate Model with Drift and Volatility Uncertainty (Center for Mathematical Economics Working Papers, 582). Bielefeld: Center for Mathematical Economics.
Hölzermann, J. (2018). Bond Pricing under Knightian Uncertainty. A Short Rate Model with Drift and Volatility Uncertainty. Center for Mathematical Economics Working Papers, 582, Bielefeld: Center for Mathematical Economics.
Hölzermann, J., 2018. Bond Pricing under Knightian Uncertainty. A Short Rate Model with Drift and Volatility Uncertainty, Center for Mathematical Economics Working Papers, no.582, Bielefeld: Center for Mathematical Economics.
J. Hölzermann, Bond Pricing under Knightian Uncertainty. A Short Rate Model with Drift and Volatility Uncertainty, Center for Mathematical Economics Working Papers, vol. 582, Bielefeld: Center for Mathematical Economics, 2018.
Hölzermann, J.: Bond Pricing under Knightian Uncertainty. A Short Rate Model with Drift and Volatility Uncertainty. Center for Mathematical Economics Working Papers, 582. Center for Mathematical Economics, Bielefeld (2018).
Hölzermann, Julian. Bond Pricing under Knightian Uncertainty. A Short Rate Model with Drift and Volatility Uncertainty. Bielefeld: Center for Mathematical Economics, 2018. Center for Mathematical Economics Working Papers. 582.
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2019-09-06T09:19:00Z
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