  A quantum field theory generalization, Baaquie, of the Heath, Jarrow, and
Morton (HJM) term structure model parsimoniously describes the evolution of
imperfectly correlated forward rates. Field theory also offers powerful
computational tools to compute path integrals which naturally arise from all
forward rate models. Specifically, incorporating field theory into the term
structure facilitates hedge parameters that reduce to their finite factor HJM
counterparts under special correlation structures. Although investors are
unable to perfectly hedge against an infinite number of term structure
perturbations in a field theory model, empirical evidence using market data
reveals the effectiveness of a low dimensional hedge portfolio.
