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On the Dybvig-Ingersoll-Ross Theorem

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Constantinos Kardaras
Eckhard Platen

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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.

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File URL: http://arxiv.org/abs/0901.2080
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Paper provided by arXiv.org in its series Quantitative Finance Papers with number 0901.2080.

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Date of creation: Jan 2009
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Handle: RePEc:arx:papers:0901.2080

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  1. Vasicek, Oldrich, 1977. "An equilibrium characterization of the term structure," Journal of Financial Economics, Elsevier, vol. 5(2), pages 177-188, November. [Downloadable!] (restricted)
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