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Continuous-Time Term Structure Models

By Marek Musiela and Marek Rutkowski

Abstract

pagehe problem of term structure of interest rates modelling is considered in a continuous-time framework. The emphasis is on the bond prices, forward bond prices or LIBOR rates, rather than on the instantaneous rates as in the traditional models. Forward and spot probability measures are introduced in this general setup. Two conditions of no-arbitrage are examined. A unique process of savings account implied by an arbitrage-free family of bond prices is identified.term structure of interest rates, forward measure, martingale

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