• DOI:10.1016/0304-405X(77)90016-2
Corpus ID: 17021498

An equilibrium characterization of the term structure

@article{Vasicek1977AnEC,
  title={An equilibrium characterization of the term structure},
  author={Oldrich A. Vasicek},
  journal={Journal of Financial Economics},
  year={1977},
  volume={5},
  pages={177-188}
}

Oldrich A. Vasicek

Published 1977

Economics

Journal of Financial Economics

Abstract The paper derives a general form of the term structure of interest rates. The following assumptions are made: (A.1) The instantaneous (spot) interest rate follows a diffusion process; (A.2) the price of a discount bond depends only on the spot rate over its term; and (A.3) the market is efficient. Under these assumptions, it is shown by means of an arbitrage argument that the expected rate of return on any bond in excess of the spot rate is proportional to its standard deviation. This… CONTINUE READING

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