A term structure model with lognormal type volatility structure is proposed. The Heath, Jarrow and Morton (HJM) framework, coupled with the theory of stochastic evolution equations in infinite dimensions, is used to show that the resulting rates are well defined (they do not explode) and remain...

Alternative ways of introducing uncertainty to the term structure of interest rates are considered. They correspond to the different expectation hypotheses. The dynamics of the term structure is analysed in a convenient framework of stochastic equations in infinite dimensions.

The problem of optimal linear estimation for continuous time processes is investigated. The signal and observation processes are solutions of a linear system. The optimal filter is given by recursive equations which reduce to the classical Kalman-Bucy equations when the system is driven by...

This article describes a general methodology that can be used for financial risk management. The approach is based on the model of Heath et al. (1992) of term structure movements but deals with the case of incomplete market. Both, domestic and foreign economies are investigated. Prices of...

A class of term structure models with volatility of lognormal type is analyzed in the general HJM framework. The corresponding market forward rates do not explode, and are positive and mean reverting. Pricing of caps and floors is consistent with the Black formulas used in the market. Swaptions...