BFS 2002

Contributed Talk

Stochastic Hyperbolic Dynamics for Infinite-dimensional Forward Rates and Option Pricing

Shin Ichi Aihara, Arunabha Bagchi

We consider the term structure modeling of interest rates by considering the forward rate as the solution of a stochastic hyperbolic partial differential equation. The arbitrage-free model of the term structure is studied and the completeness of the market is explored. We then derive results for the pricing of general contingent claims .