• RecordNumber
    2254
  • Author

    LONGSTAFF, FRANCIS A.

  • Crop_Body
    FRANCIS A. LONGSTAFF and EDUARDO S. SCHWARTZ
  • Title of Article

    Interest Rate Volatility and the Term Structure: A Two-Factor General Equilibrium Model

  • Title Of Journal
    THE JOURNAL OF FINANCE
  • Publication Year
    SEPTEMBER 1992
  • Volum
    XLVII
  • Issue Number
    4
  • Page
    1259-1282
  • Abstract
    We develop a two-factor general equilibrium model of the term structure. The factors are the short-term interest rate and the volatility of the short-term interest rate. We derive closed-form expressions for discount bonds and study the properties of the term structure implied by the model. The dependence of yields on volatility allows the model to capture many observed properties of the term structure. We also derive closed-form expressions for discount bond options. We use Hansen's generalized method of moments framework to test the cross-sectional restrictions imposed by the model. The tests support the two-factor model.
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    • Link To Document
    https://math.iranlibs.ir/dl/search/default.aspx?Term=2254&Field=0&DTC=14