Showing 1 - 10 of 11
In a recent formulation of a quantum field theory of forward rates, the volatility of the forward rates was taken to be deterministic. The field theory of the forward rates is generalized to the case of stochastic volatility. Two cases are analyzed, firstly when volatility is taken to be a...
Persistent link: https://www.econbiz.de/10005098690
The pricing of options, warrants and other derivative securities is one of the great success of financial economics. These financial products can be modeled and simulated using quantum mechanical instruments based on a Hamiltonian formulation. We show here some applications of these methods for...
Persistent link: https://www.econbiz.de/10005098758
Quantum Finance represents the synthesis of the techniques of quantum theory (quantum mechanics and quantum field theory) to theoretical and applied finance. After a brief overview of the connection between these fields, we illustrate some of the methods of lattice simulations of path integrals...
Persistent link: https://www.econbiz.de/10005099147
We calibrate and test various variants of field theory models of the interest rate with data from eurodollars futures. A model based on a simple psychological factor are seen to provide the best fit to the market. We make a model independent determination of the volatility function of the...
Persistent link: https://www.econbiz.de/10005099399
We use path integrals to calculate hedge parameters and efficacy of hedging in a quantum field theory generalization of the Heath, Jarrow and Morton (HJM) term structure model which parsimoniously describes the evolution of imperfectly correlated forward rates. We also calculate, within the...
Persistent link: https://www.econbiz.de/10005083478
The main result of this paper that a martingale evolution can be chosen for Libor such that all the Libor interest rates have a common market measure; the drift is fixed such that each Libor has the martingale property. Libor is described using a field theory model, and a common measure is seen...
Persistent link: https://www.econbiz.de/10005083631
A quantum field theory generalization, Baaquie, of the Heath, Jarrow, and Morton (HJM) term structure model parsimoniously describes the evolution of imperfectly correlated forward rates. Field theory also offers powerful computational tools to compute path integrals which naturally arise from...
Persistent link: https://www.econbiz.de/10005083901
We investigate LIBOR-based derivatives using a parsimonious field theory interest rate model capable of instilling imperfect correlation between different maturities. Delta and Gamma hedge parameters are derived for LIBOR Caps against fluctuations in underlying forward rates. An empirical...
Persistent link: https://www.econbiz.de/10005084029
A new test of a wide class of interest rate models is proposed and applied to a recently developed quantum field theoretic model and the industry standard Heath-Jarrow-Morton model. This test is independent of the volatility function unlike other tests previously proposed in the literature. It...
Persistent link: https://www.econbiz.de/10005084157
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...
Persistent link: https://www.econbiz.de/10005084383