Finite dimensional Markovian HJM term structure models provide ideal settings for the study of term structure dynamics and interest rate derivatives where the flexibility of the HJM framework and the tractability of Markovian models coexist. Consequently, these models became the focus of a...

In this paper, we begin the modeling of bond and currency prices from the modeling of the state-price density satisfying basic properties of a potential. We provide extensive examples and show their implications on bond and currency pricing. Most classic short rate models are special cases of...

Hedging interest rate exposures using interest rate futures contracts requires some knowledge of the volatility function of the interest rates. Use of historical data as well as interest rate options like caps and swaptions to estimate this volatility function have been proposed in the...