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Long-Term Interest Rates and Consol Bond Valuation

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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.

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Authors
  1. Michael Dempster
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  2. Elena Medova
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  3. Michael Villaverde
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Editor information

Editors and Affiliations

  1. Brunel University, UK

    Gautam Mitra (Chairman and Managing Director of OptiRisk Systems, Distinguished Professor and Director of CARISMA) & Katharina Schwaiger (Quantitative Analyst at OptiRisk Systems and a Postdoctoral Knowledge Transfer Partnership (KTP) Associate at CARISMA) (Chairman and Managing Director of OptiRisk Systems, Distinguished Professor and Director of CARISMA) &  (Quantitative Analyst at OptiRisk Systems and a Postdoctoral Knowledge Transfer Partnership (KTP) Associate at CARISMA)

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© 2011 Michael Dempster, Elena Medova and Michael Villaverde

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Dempster, M., Medova, E., Villaverde, M. (2011). Long-Term Interest Rates and Consol Bond Valuation. In: Mitra, G., Schwaiger, K. (eds) Asset and Liability Management Handbook. Palgrave Macmillan, London. https://doi.org/10.1057/9780230307230_4

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