Optimization and Systems Theory Seminar
March 21, 1997, 11.0012.00
Tomas Björk
Department of Finance,
Stockholm School of Economics
Some system theoretic aspects of interest rate theory
Using system theoretic ideas we try to understand when an infinite
dimensional stochastic process, like the forward rate curve in an interest
rate model, actually evolves on a finite dimensional submanifold of the
full Banach space of forward rate curves. We try to answer the following
questions.

Given a specific interest rate model (e.g. the HullWhite model) and a
fixed finite dimensional submanifold of forward curves (e.g. the
NelsonSiegel family),
What are the necessary and sufficient conditions for the submanifold to be
invariant under the action of the forward rate dynamics?

Take as given a concrete interest rate model. Does there exist a finitely
parameterized family of forward curves which is invariant under the action
of the interest rate model?
No previous knowledge in mathematical finance is necessary in order to follow
the seminar.
Calendar of seminars
Last update: March 10, 1997 by
Anders Forsgren,
andersf@math.kth.se.