"Stiff" Field Theory of Interest Rates and Psychological Future Time

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The simplest field theory description of the multivariate statistics of forward rate variations over time and maturities, involves a quadratic action containing a gradient squared rigidity term. However, this choice leads to a spurious kink (infinite curvature) of the normalized correlation function for coinciding maturities. Motivated by empirical results, we consider an extended action that contains a squared Laplacian term, which describes the bending stiffness of the FRC. With the extra ingredient of a `psychological' future time, describing how the perceived time between events depends on the time in the future, our theory accounts extremely well for the phenomenology of interest rate dynamics.
10 pages, 3 figures

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Other Condensed Matter, Statistical Mechanics, General Finance

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http://salesiana.dossiersoluciones.com/handle/123456789/208801

Consulte el texto completo en el siguiente enlace:

https://arxiv.org/abs/cond-mat/0403713
 http://arxiv.org/abs/cond-mat/0403713

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arXiv