Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/23244
Authors: 
Wilhelm, Jochen
Nietert, Bernhard
Year of Publication: 
2004
Series/Report no.: 
Passauer Diskussionspapiere, Betriebswirtschaftliche Reihe 11
Abstract: 
Pragmatic-world nominal riskless rates are non-negative. However, conventional arbitrage theory has yet to develop a theoretical justification of this phenomenon. – We define the null-alternative cash as an investor holding onto cash and refraining from investment and consumption ("doing nothing"); we use the null-alternative cash to prove that both nominal spot and nominal forward rates are non-negative and that prices of zero-coupon bonds do not increase with increasing maturity. In a positive inflation environment, however, both real spot and real forward rates might well become negative, but prices of zero-coupon bonds still do not increase with increasing maturity.
Subjects: 
arbitrage theory
inflation
non-negativity of spot and forward rates
short selling constraints
JEL: 
G10
G12
Document Type: 
Working Paper

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