Brody, D C and Hughston, L P. 2002. Entropy and Information in the Interest Rate Term Structure. Quantitative Finance, 2(1), 70 - 80. ISSN 1469-7688 [Article]

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Abstract or Description

Associated with every positive interest term structure there is a probability density function over the positive half-line. This fact can be used to turn the problem of term structure analysis into a problem in the comparison of probability distributions, an area well developed in statistics, known as information geometry. The information-theoretic and geometric aspects of term structures thus arising are here illustrated. In particular, we introduce a new term structure calibration methodology based on maximization of entropy, and also present some new families of interest rate models arising naturally in this context.

Item Type:	Article
Identification Number (DOI):	https://doi.org/10.1088/1469-7688/2/1/306
Departments, Centres and Research Units:	Computing
Dates:	Date Event 4 February 2002 Published 4 February 2002 Accepted
Item ID:	31362
Date Deposited:	04 Feb 2022 15:53
Last Modified:	04 Feb 2022 22:41
Peer Reviewed:	Yes, this version has been peer-reviewed.
URI:	https://research.gold.ac.uk/id/eprint/31362

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