The Term Structure of Interest Rates: Alternative Approaches and Their Implications for the Valuation of Contingent Claims

Marti G. Subrahmanyam
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Marti G. Subrahmanyam: New York University, Leonard N. Stern School of Business

A chapter in Financial Risk and Derivatives, 1996, pp 7-28 from Springer

Abstract: Abstract One of the most active areas of research in financial economics has been the modeling of the term structure of interest rates and its relationship to the pricing of contingent claims. There is a vast array of issues in the area, as well as a variety of perspectives, ranging from theoretical to practical. This article provides a general framework for the analysis of issues in the modeling of the term structure. Specifically, this article provides an overview of the conceptual issues and the empirical evidence in the area, based on an examination of five seminal models by Black, Scholes, and Merton; Vasicek; Cox, Ingersoll, and Ross; Ho and Lee; and Heath, Jarrow, and Morton. The article provides a synthesis of the area and suggests directions for future research.

Keywords: term structure; interest rates; contingent claims valuation; Black-Scholes model; mean-reversion; no-arbitrage condition; preference-free pricing; general equilibrium; equivalent martingale measure (search for similar items in EconPapers)
Date: 1996
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-94-009-1826-9_2

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DOI: 10.1007/978-94-009-1826-9_2

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