The present paper extensively studies Gaussian term structure and interest rate models in the perspective of stochastic discounting. Related issues such as consistent stock price models and option prices are also discussed

The paper gives a slightly generalised version of the well-known Ho-Lee-model of the term structure of interest rates. The Ho-Lee-model is reconstructed by the method of stochastic discounting; continuous time limits are considered which are parallel to the work of Heath, Jarrow and Morton. In...

When firms want to raise external financing, why do they resort to contracts with fixed repayment, i.e., standard debt contracts? The canonical work of Gale and Hellwig (Rev Econ Stud, 52(4):647–663, 1985) gives the following answer to this question: Assuming that only the entrepreneur can...

Today's primarily mathematically oriented arbitrage theory does not address some economically important aspects of pricing. These are, first, the implicit conjecture that there is quot;thequot; price of a portfolio, second, the exact formulation of no-arbitrage, price reproduction, and...

The option pricing model by Black and Scholes (1973) and the term structure model by Ho and Lee (1986) are among the most influential models of capital market theory. While Black/Scholes consider stock option prices under the assumption of a constant deterministic interest rate, Ho and Lee were...

In the present paper we reformulated a slightly generalised version of the Ho-Lee-model of the term structure of interest rates by using the method of stochastic discounting. The main results can be summarized as follows: The time discrete Ho-Lee-model of the interest rate structure can be...