Entropy and Information in the Interest Rate Term Structure

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.

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4 February 2002Published
4 February 2002Accepted

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04 Feb 2022 15:53

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04 Feb 2022 22:41

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Yes, this version has been peer-reviewed.



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