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A Theory of the Decreasing Term Structure of Discount Rates

Christian Gollier

in Pricing the Planet's Future: The Economics of Discounting in an Uncertain World

Published in print:
2012
Published Online:
October 2017
ISBN:
9780691148762
eISBN:
9781400845408
Item type:
chapter
Publisher:
Princeton University Press
DOI:
10.23943/princeton/9780691148762.003.0008
Subject:
Economics and Finance, Development, Growth, and Environmental

This chapter aims to provide a unified theoretical foundation to the term structure of discount rates. To do this the chapter develops a benchmark model based on two assumptions: individual ... More


Random Walk and Mean-Reversion

Christian Gollier

in Pricing the Planet's Future: The Economics of Discounting in an Uncertain World

Published in print:
2012
Published Online:
October 2017
ISBN:
9780691148762
eISBN:
9781400845408
Item type:
chapter
Publisher:
Princeton University Press
DOI:
10.23943/princeton/9780691148762.003.0004
Subject:
Economics and Finance, Development, Growth, and Environmental

This chapter illustrates that the shape of the term structure of discount rates is determined by the way the wealth effect and the precautionary effects evolve with the time horizon. When the growth ... More


Who Should Buy Long‐Term Bonds?

John Y. Campbell and Luis M. Viceira

in Strategic Asset Allocation: Portfolio Choice for Long-Term Investors

Published in print:
2002
Published Online:
November 2003
ISBN:
9780198296942
eISBN:
9780191596049
Item type:
chapter
Publisher:
Oxford University Press
DOI:
10.1093/0198296940.003.0003
Subject:
Economics and Finance, Financial Economics

Develops a theory of long‐term portfolio choice when the real interest rate changes over time, but risk premia and variances and covariances of returns are constant. Conventional short‐term ... More


Markov Switches and Extreme Events

Christian Gollier

in Pricing the Planet's Future: The Economics of Discounting in an Uncertain World

Published in print:
2012
Published Online:
October 2017
ISBN:
9780691148762
eISBN:
9781400845408
Item type:
chapter
Publisher:
Princeton University Press
DOI:
10.23943/princeton/9780691148762.003.0005
Subject:
Economics and Finance, Development, Growth, and Environmental

This chapter examines the effects of a dramatic switch in the dynamics of economic growth for the term structure of the discount rate over the longer term. Economies undergo radical transformations. ... More


Inequalities

Christian Gollier

in Pricing the Planet's Future: The Economics of Discounting in an Uncertain World

Published in print:
2012
Published Online:
October 2017
ISBN:
9780691148762
eISBN:
9781400845408
Item type:
chapter
Publisher:
Princeton University Press
DOI:
10.23943/princeton/9780691148762.003.0009
Subject:
Economics and Finance, Development, Growth, and Environmental

This chapter makes adaptations to the canonical models of the term structure developed so far, to recognize inequalities as crucial features of our world, arguing that even abstracting from the ... More


Fixed Income Modelling

Claus Munk

Published in print:
2011
Published Online:
September 2011
ISBN:
9780199575084
eISBN:
9780191728648
Item type:
book
Publisher:
Oxford University Press
DOI:
10.1093/acprof:oso/9780199575084.001.0001
Subject:
Economics and Finance, Financial Economics

This book offers a unified presentation of dynamic term structure models and their applications to the pricing and risk management of fixed income securities. The basic fixed income securities and ... More


Learning, Macroeconomic Dynamics, and the Term Structure of Interest Rates

Hans Dewachter and Marco Lyrio

in Asset Prices and Monetary Policy

Published in print:
2008
Published Online:
February 2013
ISBN:
9780226092119
eISBN:
9780226092126
Item type:
chapter
Publisher:
University of Chicago Press
DOI:
10.7208/chicago/9780226092126.003.0006
Subject:
Economics and Finance, Macro- and Monetary Economics

This chapter builds and estimates a macroeconomic model that includes learning. Learning was introduced in the model by assuming that agents do not believe in time-invariant inflation targets nor in ... More


Understanding Inflation-Indexed Bond Markets

Michael Haliassos

in Financial Innovation: Too Much or Too Little?

Published in print:
2013
Published Online:
January 2015
ISBN:
9780262018296
eISBN:
9780262305495
Item type:
chapter
Publisher:
The MIT Press
DOI:
10.7551/mitpress/9780262018296.003.0003
Subject:
Economics and Finance, Financial Economics

This chapter explores the history of inflation-indexed bond markets in the United States and the United Kingdom. It documents a massive decline in long-term real interest rates from the 1990s until ... More


Martingale Models for the Short Rate

Tomas Björk

in Arbitrage Theory in Continuous Time

Published in print:
1998
Published Online:
November 2003
ISBN:
9780198775188
eISBN:
9780191595981
Item type:
chapter
Publisher:
Oxford University Press
DOI:
10.1093/0198775180.003.0017
Subject:
Economics and Finance, Financial Economics

This chapter introduces the concept of martingale modelling of the short rate. We discuss the standard short rate models and derive the corresponding bond and option prices. In particular, we present ... More


Arbitrage Theory in Continuous Time

Tomas Björk

Published in print:
1998
Published Online:
November 2003
ISBN:
9780198775188
eISBN:
9780191595981
Item type:
book
Publisher:
Oxford University Press
DOI:
10.1093/0198775180.001.0001
Subject:
Economics and Finance, Financial Economics

This book gives a comprehensive introduction to arbitrage theory for the pricing of contingent claims, such as options, futures, and other financial derivatives. The arbitrage theory for the term ... More


Models of the Yield Curve and Term Structure

Tom P. Davis and Dmitri Mossessian

in Debt Markets and Investments

Published in print:
2019
Published Online:
June 2020
ISBN:
9780190877439
eISBN:
9780190877460
Item type:
chapter
Publisher:
Oxford University Press
DOI:
10.1093/oso/9780190877439.003.0013
Subject:
Economics and Finance, Financial Economics

This chapter presents an overview of the modern state of term structure modeling techniques. It provides an analytical framework that is applicable to all short rate models and considers them from ... More


Forward Rate Models

Tomas Björk

in Arbitrage Theory in Continuous Time

Published in print:
1998
Published Online:
November 2003
ISBN:
9780198775188
eISBN:
9780191595981
Item type:
chapter
Publisher:
Oxford University Press
DOI:
10.1093/0198775180.003.0018
Subject:
Economics and Finance, Financial Economics

Here we present the Heath–Jarrow–Morton approach of modelling the evolution of the entire forward rate curve.


Short Rate Models

Tomas Björk

in Arbitrage Theory in Continuous Time

Published in print:
1998
Published Online:
November 2003
ISBN:
9780198775188
eISBN:
9780191595981
Item type:
chapter
Publisher:
Oxford University Press
DOI:
10.1093/0198775180.003.0016
Subject:
Economics and Finance, Financial Economics

Here, we present the standard theory of arbitrage pricing of interest‐rate‐related claims for short rate models.


Term Structure Models

Kerry E. Back

in Asset Pricing and Portfolio Choice Theory

Published in print:
2017
Published Online:
May 2017
ISBN:
9780190241148
eISBN:
9780190241179
Item type:
chapter
Publisher:
Oxford University Press
DOI:
10.1093/acprof:oso/9780190241148.003.0018
Subject:
Economics and Finance, Financial Economics

Bond yields and forward rates are defined. The fundamental PDE is derived. Affine term strucure models are explained, including the Vasicek model and the Cox‐Ingersoll‐Ross square root model. ... More


Commercial Banks

Stefan Homburg

in A Study in Monetary Macroeconomics

Published in print:
2017
Published Online:
August 2017
ISBN:
9780198807537
eISBN:
9780191845451
Item type:
chapter
Publisher:
Oxford University Press
DOI:
10.1093/oso/9780198807537.003.0007
Subject:
Economics and Finance, Macro- and Monetary Economics

Chapter 7 introduces commercial banks as creators of money and integrates them into the general equilibrium framework. The motivation to deviate from the standard approach that neglects commercial ... More


Short Rate Models

Tomas Björk

in Arbitrage Theory in Continuous Time

Published in print:
2019
Published Online:
February 2020
ISBN:
9780198851615
eISBN:
9780191886218
Item type:
chapter
Publisher:
Oxford University Press
DOI:
10.1093/oso/9780198851615.003.0020
Subject:
Economics and Finance, Econometrics

The simplest Markovian short rate model is analyzed using classical and martingale methods, and the term structure equation for the determination of zero coupon bond prices is derived.


Bonds and Interest Rates

Tomas Björk

in Arbitrage Theory in Continuous Time

Published in print:
1998
Published Online:
November 2003
ISBN:
9780198775188
eISBN:
9780191595981
Item type:
chapter
Publisher:
Oxford University Press
DOI:
10.1093/0198775180.003.0015
Subject:
Economics and Finance, Financial Economics

In this chapter, the reader is introduced to the basic facts and concepts concerning bond markets.


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