A nonlinear general equilibrium model of the term structure of interest rates

@inproceedings{Longstaff1989ANG,
  title={A nonlinear general equilibrium model of the term structure of interest rates},
  author={Francis A. Longstaff},
  year={1989}
}
Abstract We derive and test an alternative closed-form general equilibrium model of the term structure within the Cox, Ingersoll, and Ross theoretical framework in which yields are nonlinear functions of the risk-free rate. We show that equilibrium bond prices and the risk-free rate are not always inversely related and that bond risk need not be strictly increasing in maturity. Using Hansen's generalized method of moments to obtain parameter estimates, this nonlinear model outperforms the Cox… CONTINUE READING

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