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Long-Term Interest Rates and Consol Bond Valuation

In: Asset and Liability Management Handbook

Author

Listed:
  • Michael Dempster
  • Elena Medova
  • Michael Villaverde

Abstract

The literature in the area of interest rate modelling is extensive. Traditional term structure models, such as Vasicek (1977) and Cox et al (1985) specify the short rate process. As short-term and long-term rates are not perfectly correlated, the data are clearly inconsistent with the use of one-factor time-homogeneous models. Chan et al (1992) demonstrate the empirical difficulties of one-factor continuous-time specifications within the Vasicek and Cox-Ingersoll-Ross (CIR) class of models using the generalized methods of moments.

Suggested Citation

  • Michael Dempster & Elena Medova & Michael Villaverde, 2011. "Long-Term Interest Rates and Consol Bond Valuation," Palgrave Macmillan Books, in: Gautam Mitra & Katharina Schwaiger (ed.), Asset and Liability Management Handbook, chapter 4, pages 79-109, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-30723-0_4
    DOI: 10.1057/9780230307230_4
    as

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