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ON THE DYBVIG‐INGERSOLL‐ROSS THEOREM
Author(s) -
Kardaras Constantinos,
Platen Eckhard
Publication year - 2012
Publication title -
mathematical finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.98
H-Index - 81
eISSN - 1467-9965
pISSN - 0960-1627
DOI - 10.1111/j.1467-9965.2011.00476.x
Subject(s) - economics , term (time) , mathematical economics , econometrics , arbitrage , mathematics , financial economics , physics , quantum mechanics
The Dybvig‐Ingersoll‐Ross (DIR) theorem states that, in arbitrage‐free term structure models, long‐term yields and forward rates can never fall. We present a refined version of the DIR theorem, where we identify the reciprocal of the maturity date as the maximal order that long‐term rates at earlier dates can dominate long‐term rates at later dates. The viability assumption imposed on the market model is weaker than those appearing previously in the literature.