This paper develops a decentralized theory that determines the fair value of the yield-to-maturity of a bond or bond portfolio based purely on the near-term dynamics of the yield itself. The theory decomposes the yield into three components: its expected change, its risk premium, and its...

We show how to price and replicate a variety of barrier-style claims written on the log price X and quadratic variation <X> of a risky asset. Our framework assumes no arbitrage, frictionless markets and zero interest rates. We model the risky asset as a strictly positive continuous semimartingale...</x>