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Enlin Pan
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Enlin Pan: 123 N. Waukegan Rd. # 207, Lake Bluff IL 60044, USA

International Journal of Theoretical and Applied Finance (IJTAF), 1998, vol. 01, issue 02, 247-282

Abstract: When bond prices can be described in a state-space framework, the no-arbitrage condition and the positivity of forward prices together impose such a tight restriction that only one functional form for the zero-coupon term structure is possible. The explicit form of the term structure is derived, without any parameters. Thus it is unnecessary and even counter-productive to try to specify the nature of interest rate dynamics. Bond pricing has exactly three degrees of freedom.

Date: 1998
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DOI: 10.1142/S021902499800014X

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