Recent work in statistical mechanics has developed new analytical and numerical techniques to solve coupled stochastic equations. This paper describes application of the very fast simulated reannealing and path-integral methodologies to the estimation of the Brennan and Schwartz two-factor term-structure (time-dependent) model of bond prices. It is shown that these methodologies can be utilized to estimate more complicated n-factor nonlinear models. Applications to other systems are stressed.

• Received 27 August 1990

DOI:https://doi.org/10.1103/PhysRevA.42.7057