NOTES 395 Now assume that bond price dynamics under a martingale measure Q are given by...
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NOTES 395 Now assume that bond price dynamics under a martingale measure Q are given by dp(t,T) = p(t,T)r(t)dt + p(t,T)v(t,T)dW(t), where W is a vector valued Q-Wiener process. Use the heuristic arguments given in the derivation of the HJM drift condition (see Section 22.2.2) in order to show that the consol dynamics are of the form where dC(t) = (C(t)r(t) 1) dt + oc(t)dW (t), oc(t) = **p(t, s)v(t, s)ds. NOTES 395 Now assume that bond price dynamics under a martingale measure Q are given by dp(t,T) = p(t,T)r(t)dt + p(t,T)v(t,T)dW(t), where W is a vector valued Q-Wiener process. Use the heuristic arguments given in the derivation of the HJM drift condition (see Section 22.2.2) in order to show that the consol dynamics are of the form where dC(t) = (C(t)r(t) 1) dt + oc(t)dW (t), oc(t) = **p(t, s)v(t, s)ds.
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