European Business Schools Librarian's Group
Working Papers,
Copenhagen Business School, Department of Finance
No 2005-5: Term Structure Models with Parallel and Proportional Shifts
Frederik Armerin (), Tomas Björk () and Bjarne Astrup Jensen ()
Additional contact information
Frederik Armerin: Department of Mathematics, Postal: Royal Institute of Technology, SE-100 44 Stockholm, SWEDEN
Tomas Björk: Department of Finance,, Postal: Stockholm School of Economics,, Box 6501,, SE-113 83 Stockholm, SWEDEN,
Bjarne Astrup Jensen: Department of Finance, Copenhagen Business School, Postal: Department of Finance, Copenhagen Business School, Solbjerg Plads 3, A5, DK-2000 Frederiksberg, Denmark
Abstract: We investigate the possibility of an arbitrage free model for the term structure of interest rates where the yield curve only changes through a parallel shift. We consider HJM type forward rate models driven by a multidimensionalWiener process as well as by a general marked point process. Within this general framework we show that there does indeed exist a large variety of nontrivial parallel shift term structure models, and we also describe these in detail. We also show that there exists no nontrivial flat term structure model. The same analysis is repeated for the similar case, where the yield curve only changes through proportional shifts.
Keywords: bond market; term structure of interest rates; flat term structures
JEL-codes: G00
23 pages, October 26, 2005
Note: Forthcoming in Applied Mathematical Finance
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