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Bond returns and financial index numbers: Results from an intertemporal arbitrage free model

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  • Jensen, Bjarne Astrup
  • Nielsen, Jørgen Aase

Abstract

The purpose of this paper is to shed light on some qualitative properties of binomial lattice models by analysing the entire distribution of future values arising from simple bond investment strategies. Our analysis is carried out by first determining the arbitrage free developments of the initial term structure. Secondly, we use these developments to analyse the entire distribution of future values arising from simple investment strategies. Additionally, we analyse whether index numbers such as the yield to maturity and the duration and the convexity are useful in order to characterize these distributions.

Suggested Citation

  • Jensen, Bjarne Astrup & Nielsen, Jørgen Aase, 1993. "Bond returns and financial index numbers: Results from an intertemporal arbitrage free model," Scandinavian Journal of Management, Elsevier, vol. 9(Supplemen), pages 101-115.
    • Handle: RePEc:eee:scaman:v:9:y:1993:i:supplement1:p:s101-s115
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