Stochastic string models with continuous semimartingales

This paper reformulates the stochastic string model of Santa-Clara and Sornette using stochastic calculus with continuous semimartingales. We present some new results, such as: (a) the dynamics of the short-term interest rate, (b) the PDE that must be satisfied by the bond price, and (c) an analytic expression for the price of a European bond call option. Additionally, we clarify some important features of the stochastic string model and show its relevance to price derivatives and the equivalence with an infinite dimensional HJM model to price European options.