On the Dybvig-Ingersoll-Ross Theorem

Constantinos Kardaras and Eckhard Platen ()

Quantitative Finance Papers from arXiv.org

Abstract: The Dybvig-Ingersoll-Ross (DIR) theorem states that, in arbitrage-free term structure models, long-term yields and forward rates can never fall. We present a unifying approach with a refined version of the DIR theorem, where we identify the reciprocal of the maturity date as the maximal order that long-term rates at earlier dates can dominate long-term rates at later dates. The viability assumption imposed on the market model is significantly weaker than those appearing previously in the literature.

New Economics Papers: this item is included in nep-pke
Date: 2009-01
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