On the construction of finite dimensional realizations for nonlinear forward rate models

@article{Bjrk2002OnTC,
  title={On the construction of finite dimensional realizations for nonlinear forward rate models},
  author={Tomas Bj{\"o}rk and Camilla Land{\'e}n},
  journal={Finance and Stochastics},
  year={2002},
  volume={6},
  pages={303-331}
}
We consider interest rate models of Heath-Jarrow-Morton type where the forward rates are driven by a multidimensional Wiener process, and where the volatility structure is allowed to be a smooth functional of the present forward rate curve. In a recent paper (to appear in Mathematical Finance) Björk and Svensson give necessary and sufficient conditions for the existence of a finite dimensional Markovian state space realization (FDR) for such a forward rate model, and in the present paper we… CONTINUE READING
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