Abstract
A new test of a wide class of interest rate models is proposed and applied to
a recently developed quantum field theoretic model and the industry standard
Heath-Jarrow-Morton model. This test is independent of the volatility function
unlike other tests previously proposed in the literature. It is found that the
HJM model is inconsistent with the data while the quantum field theoretic model
is in significant agreement with data. We also show that a portion of the
spread between long and short term interest rates is explicable in terms of
this model.
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