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Working Papers (1999), ESSEC Business School

Infinite Dimensional HJM Dynamics for the Term Structure of Interest Rates

GUIOTTO P., RONCORONI Andrea

This paper deals with the integration of the yield curve estimation technology into an arbitrage free stochastic dynamic. This problem is solved by an infinite-dimensional model which incorporates and redefines previous results by Heath, Jarrow, Morton and Musiela. A closed-form caplet formula is provided in terms of the decomposed term structure. A calibration procedure is also described.

GUIOTTO, P. and RONCORONI, A. (1999). Infinite Dimensional HJM Dynamics for the Term Structure of Interest Rates. ESSEC Business School.