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arxiv: 1512.05321 · v1 · pith:PYHNOI75new · submitted 2015-12-16 · 💱 q-fin.MF · math.PR

Forward rate models with linear volatilities

classification 💱 q-fin.MF math.PR
keywords existencesolutionsbehaviorconditionslinearnoisewithoutbond
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Existence of solutions to the Heath-Jarrow-Morton equation of the bond market with linear volatility and general L\'evy random factor is studied. Conditions for existence and non-existence of solutions in the class of bounded fields are presented. For the existence of solutions the L\'evy process should necessarily be without the Gaussian part and without negative jumps. If this is the case then necessary and sufficient conditions for the existence are formulated either in terms of the behavior of the L\'evy measure of the noise near the origin or the behavior of the Laplace exponent of the noise at infinity.

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