Quantum field theory of treasury bonds.
The Heath-Jarrow-Morton (HJM) formulation of treasury bonds in terms of forward rates is recast as a problem in path integration. The HJM model is generalized to the case where all the forward rates are allowed to fluctuate independently. The resulting theory is shown to be a two-dimensional Gaussian quantum field theory. The no arbitrage condition is obtained and a functional integral derivation is given for the price of a futures and an options contract.
Baaquie
B E
BE
Department of Physics, National University of Singapore, Kent Ridge Road, Singapore 091174, Singapore.