Phys. Rev. E 64, 016121 (2001) [16 pages]Quantum field theory of treasury bonds |
PRL Celebrates 50 Years
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Belal E. Baaquie
Department of Physics, National University of Singapore, Kent Ridge Road, Singapore 091174, Singapore
Received 20 September 2000; revised 12 February 2001; published 22 June 2001
The Heath-Jarrow-Morton (HJM) formulation of treasury bonds in terms of forward rates is recast as a problem in path integration. The HJM model is generalized to the case where all the forward rates are allowed to fluctuate independently. The resulting theory is shown to be a two-dimensional Gaussian quantum field theory. The no arbitrage condition is obtained and a functional integral derivation is given for the price of a futures and an options contract.
©2001 The American Physical Society
URL: http://link.aps.org/abstract/PRE/v64/e016121
DOI: 10.1103/PhysRevE.64.016121
PACS: 02.50.-r, 05.40.-a
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