Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/27171
Authors: 
Schulze, Klaas
Year of Publication: 
2008
Series/Report no.: 
Bonn econ discussion papers 2008,11
Abstract: 
Pricing and hedging of long-term interest rate sensitive products require to extrapolate the term structure beyond observable maturities. For the resulting limiting term structure we show two results by postulating no arbitrage in a bond market with infinitely increasing maturities: long zero-bond yields and long forward rates (i) are monotonically increasing and (ii) equal their minimal future value. Both results constrain the asymptotic maturity behavior of stochastic yield curves. They are fairly general and extend beyond semimartingale modeling. Hence our framework embeds arbitrage-free term structure models and imposes restrictions on their specification.
Subjects: 
bond markets
yield curve
long forward rates
no arbitrage
asymptotic maturity
JEL: 
G10
G12
E43
Document Type: 
Working Paper

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