The Signal-Based Framework

This chapter, assembles some fundamental properties of random bridge processes and justifies their use in modelling forwardlooking financial information. Although this chapter is essentially based on Brody et al. (Int J Theor Appl Financ 11(1):107–142, 2008), Brody et al. (Beyond hazard rates: a new framework for credit-risk modelling. Birkhauser, Boston, 2007) and Brody et al. (Proc Math Phys Eng Sci 464(2095):1801–1822, 2008), it contributes to the existing literature by recovering the necessary properties of the signal-based framework in a much greater detail, and presenting a useful information-theoretic analysis to quantify the information component.