November 1998
Intermediate to advanced
220 pages
6h 36m
English
Content preview from Fixed Income and Interest Rate Derivative Analysis
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CONTINUOUS-TIME FINANCE 159
where mt is a random variable called the pricing kernel, or state price density
or stochastic discount factor. It follows that the price of any zero-coupon bond
is simply
Et[mT]
B(t,T) --
TrOt
Modelling proceeds by constructing various processes for mr. Rogers (1997)
and Campbell, Lo, and Mackinlay (1997) develop a variety of models using
this approach.
11.8
References
11.8.1 General
1. Shimko, D.C.
Finance in Continuous Time: A Primer, Kolb Publishing
Company.
2. Merton, R.C.
Continuous-Time Finance, Chapter 3, Blackwell
Publishers.
3. Baxter, M. and A. Rennie
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