A Multinomial Model for a Bond Market |
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| Authors: | J. Artamonova R. Leipus |
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| Affiliation: | (1) Vilnius University, Naugarduko 24, LT-03225 Vilnius, Lithuania;(2) Institute of Mathematics and Informatics, Akademijos 4, LT-08663 Vilnius, Lithuania |
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| Abstract: | In this paper, we generalize the classical binomial bond market model of Ho and Lee [2] to the multinomial model. We establish necessary and sufficient conditions for such a bond market model to be arbitrage-free and path independent. We study the bond option pricing and forward-rate equation in the trinomial case.Research is supported by the Lithuanian State Science and Studies Foundation, program  Mathematical models of Lithuanian economy for forecasting of the macroeconomic processes (registration No C-03004).__________Translated from Lietuvos Matematikos Rinkinys, Vol. 44, No. 4, pp. 413–428, October–December, 2004. |
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| Keywords: | bond market multinomial model |
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