Please use this identifier to cite or link to this item: https://doi.org/10.1142/S0219024903001980
Title: A quantum field theory term structure model applied to hedging
Authors: Baaquie, B.E. 
Srikant, M. 
Warachka, M.C.
Keywords: Bond Portfolio
Field Theory Model
Hedging
Variance Minimization
Issue Date: Aug-2003
Citation: Baaquie, B.E.,Srikant, M.,Warachka, M.C. (2003-08). A quantum field theory term structure model applied to hedging. International Journal of Theoretical and Applied Finance 6 (5) : 443-467. ScholarBank@NUS Repository. https://doi.org/10.1142/S0219024903001980
Abstract: A quantum field theory generalization, Baaquie, of the Heath, Jarrow and Morton (HJM) term structure model parsimoniously describes the evolution of imperfectly correlated forward rates. Field theory also offers powerful computational tools to compute path integrals which naturally arise from all forward rate models. Specifically, incorporating field theory into the term structure facilitates hedge parameters that reduce to their finite factor HJM counterparts under special correlation structures. Although investors are unable to perfectly hedge against an infinite number of term structure perturbations in a field theory model, empirical evidence using market data reveals the effectiveness of a low dimensional hedge portfolio.
Source Title: International Journal of Theoretical and Applied Finance
URI: http://scholarbank.nus.edu.sg/handle/10635/95674
ISSN: 02190249
DOI: 10.1142/S0219024903001980
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