Volatility and drift of the instantaneous forward rate under risk ...
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options - Why Drifts are not in the Black Scholes Formula ...
WEBTherefore the forward contract will grow at the risk free rate with its expiry date and not the stock drift. Note that repo and dividend impact the forward though because those are actual cash flows which cannot be just replicated at inception so they impact the forward rate.
How to prove martingality of forward rate under T-forward measure
WEBJun 14, 2019 · The rate you have defined is the instantaneous forward rate, whereas in the answer below the forward rate is used. $\endgroup$ – Daneel Olivaw Commented Jun 14, 2019 at 20:47
Does a forward price have a drift component in any measure?
WEBMar 18, 2015 · It the value of the forward contract and not the forward price that has drift r under the risk-neutral measure. In fact, in the simplest case where the risk-free interest rate is a constant r, then the forward price process f(t,T) has zero drift under the risk-neutral measure: If the spot price process satisfies dS(t)=S(t)(rdt+bdW(t)), then dF ...
volatility - Implication of forward-rate dynamics when the short …
WEBJun 17, 2020 · For Q1, Indeed the ratio of 2 zero coupon bonds associated with the forward is an exact lognormal process (Just apply Ito's lemma to the ratio, as you already know the dynamics of the 0 coupon bonds. You can disregard the drift term as the forward rate is a martingale in the bond forward measure.).
Forward rates are martingale under the T-forward measure
WEBDec 12, 2019 · Not only does it express the negative correlation between bond price and forward rate, but it also has its importance for your problem (more in my comment below). $\endgroup$ – siou0107 Commented Dec 13, 2019 at 13:34
Dynamics of LIBOR foward rate under T-forward measure
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Forward rates diffusion - Quantitative Finance Stack Exchange
WEBI used a simple market model (Black 76) to price an american swaption. It's a formula similar to B&S, with another numeraire and forward rate as underlying. I used the SDE: $$ dF = \\sigma...
Understanding the HJM drift condition's dimensions
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What is drift in interest rate term structure model
WEBFrom the equation above $\lambda$ is the drift factor and $\lambda dt$ is the drift. I have a very confusing explanation of drift which is along the lines of interest rates are moved in the future by some factor. Can someone give me an explanation of drift. An example associated with it would be ideal. Thanks!