A class of Health-Jarrow-Morton models in which the unbiased expectations hypothesis holds

Frank Riedel

No 1997,19, SFB 373 Discussion Papers from Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes

Abstract: The unbiased expectations hypothesis states that forward rates are unbiased estimates for future short rates. Cox, Ingersoll and Ross [1] conjectured that this hypothesis should be inconsistent with the absence of arbitrage possibilities. Using the framework of Heath, Jarrow and Morton [4] we show that this is not always the case. The unbiased expectations hypothesis together with the existence of an equivalent martingale measure is equivalent to a certain condition on the volatilities of the forward rates.

Keywords: term structure of interest rates; expectations hypotheses (search for similar items in EconPapers)
JEL-codes: E43 G12 (search for similar items in EconPapers)
Date: 1997
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:sfb373:199719

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