HEAT KERNEL INTEREST RATE MODELS WITH TIME-INHOMOGENEOUS MARKOV PROCESSES
HEAT KERNEL INTEREST RATE MODELS WITH TIME-INHOMOGENEOUS MARKOV PROCESSES
We consider a heat kernel approach for the development of stochastic pricing kernels. The kernels are constructed by positive propagators, which are driven by time-inhomogeneous Markov processes. We multiply such a propagator with a positive, time-dependent and decreasing weight function, and integrate the product over time. The result is a …