Suppose the forward rate F(t, ) is defined in terms of running time t and time to maturity (instead of maturity date T), where Under the one factor HJM framework, we write F (t, ) F (t, t ) Show that the dynamics of F(t, ) under the risk neutral measure Q are given by (Brace and Musiela, 1994) F(t,...

To show the dynamics of t 7 under the riskneutral measure Q lets start with the forward rate equ ...

Suppose the forward rate F(t, ) & is defined in terms of running time t and time

Question:

Suppose the forward rate F̂(t, τ) & is defined in terms of running time t and time to maturity τ (instead of maturity date T), where

F(t, t) = F(t, t+t).

Under the one-factor HJM framework, we write σ_F̂ &(t, τ) = σF (t, t +τ). Show that the dynamics of F̂(t, τ) & under the risk neutral measure Q are given by (Brace and Musiela, 1994)

$+0F(t, t) dz(t). 0 op [xp(x\da Janta + (0g=$

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Mathematical Models Of Financial Derivative

ISBN: 9783642447938

2nd Edition

Authors: Yue-Kuen Kwok

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Question Posted: Dec 05, 2023 12:54 AM

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Suppose the forward rate F(t, ) & is defined in terms of running time t and time

Question:

F(t, t) = F(t, t+t).

Step by Step Answer:

To show the dynamics of t 7 under the riskneutral measure Q lets start with the forward rate equ...View the full answer

Mathematical Models Of Financial Derivative

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