Term Structure of Interest Rates in the Presence of Levy Jumps: The HJM Approach

Chenghu Ma

The aim of this paper is to generalize Heath, Jarrow and Morton (1992, Econometrica) model of the term structure of interest rates within a jump-diffusion framework. This is achieved by assuming that the forward rate process has a Levy jump component with general jump size distributions. Sufficient conditions are derived under which the no-arbitrage condition implies the existence of a unique martingale measure within the jump-diffusion framework.