Consistency Problems for Heath-Jarrow-Morton Interest Rate Models

Introduction. Bond Markets. Forward Curve-Fitting Methods and Factor Models. The HJM Methodology. Invariant Manifolds. Outline. Remark on Notation.- <BR>Stochastic Equations in Infinite Dimension. Infinite- Dimensional Brownian Motion. The Stochastic Integral. Fundamental Tools. Ito's Formula. The Stochastic Fubini Theorem. Girsanov's Theorem. Stochastic Equations. Mild, Weak and Strong Solutions. Existence and Uniqueness.-<BR>Consistent State Space Processes. Ito Process Factor Models. Exponential-Polynomial Families. Auxiliary Results. The Case BEP (1,n). The General Case BEP (K,n). The Diffusion Case. Applications. The Nelson-Siegel Family. The Svensson Family. Conclusions.- <BR>The HJM Methodology Revisited. Term Structure Movements. The Musiela Parametrization. Arbitrage-free Term Structure Movements. Contingent Claim Valuation. When is Z (.,T) a True Q-Martingale? The Forward Measure. Forward LIBOR Rates. Caps. What is a Model?- <BR>The Forward Curve Spaces H w. Definition of H w. Volatility Specification. The Yield Curve. Local State Dependent Volatility. Functional Dependent Volatility. The BGM Model.- Invariant Manifolds for Stochastic Equations. Finite-Dimensional Submanifolds in Banach Spaces. Invariant Manifolds. Proof of Theorems 6.2.1-6.2.4. Consistency Conditions in Local Coordinates.-<BR>Consistent HJM Models. Consistency Problems. A Simple Regularity Criterion for G. Regular Exponential-Polynomial Families. The Nelson-Siegel Family. The Regular Svensson Family. Affine Term Structure. The Cox-Ingersoll-Ross (CIR) Model. The Vasicek Model.- <BR>Appendix: A Summary of Conditions. Axioms for the Forward Curve Space. Conditions on the Forward Curve Movements. Conditions for HJM Models. Assumptions for Characterizing Invariant Manifolds.