This paper presents an axiomatic scheme for interest rate models in discrete time. We take a pricing kernel approach, which builds in the arbitrage-free property and pro- vides a link to equilibrium economics. We require that the pricing kernel be consistent with a pair of axioms, one giving the...

We consider a heat kernel approach for the development of stochastic pricing kernels. The kernels are constructed by positive propagators, which are driven by time-inhomogeneous Markov processes. We multiply such a propagator with a positive, time-dependent and decreasing weight function, and...