TY  - GEN
AB  - We show how to set up a forward rate model in the presence of volatility uncertainty
by using the theory of G-Brownian motion. In order to formulate the model, we extend
the G-framework to integration with respect to two integrators and prove a version of
Fubini's theorem for stochastic integrals. The evolution of the forward rate in the model
is described by a diffusion process, which is driven by a G-Brownian motion. Within
this framework, we derive a sufficient condition for the absence of arbitrage, known as
the drift condition. In contrast to the traditional model, the drift condition consists of
two equations and two market prices of risk, respectively, uncertainty. Furthermore, we
examine the connection to short rate models and discuss some examples.
DA  - 2019
KW  - Robust Finance
KW  - Knightian Uncertainty
KW  - Interest Rates
KW  - No-Arbitrage
LA  - eng
PY  - 2019
SN  - 0931-6558
TI  - Term Structure Modeling under Volatility Uncertainty: A Forward Rate Model driven by G-Brownian Motion
UR  - https://nbn-resolving.org/urn:nbn:de:0070-pub-29348400
Y2  - 2024-11-22T01:07:59
ER  -