• Corpus ID: 237414876

Term Structure Modeling under Volatility Uncertainty

@inproceedings{Holzermann2019TermSM,
  title={Term Structure Modeling under Volatility Uncertainty},
  author={Julian Holzermann},
  year={2019}
}
In this paper, we study term structure movements in the spirit of Heath, Jarrow, and Morton [Econometrica 60 (1), 77-105] under volatility uncertainty. We model the instantaneous forward rate as a diffusion process driven by a G-Brownian motion. The G-Brownian motion represents the uncertainty about the volatility. 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… 

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