Economics, Econometrics and Finance
4 years ago

New model predicts long-bond returns, impacting global interest rates.

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International Journal of Theoretical and Applied Finance
LÉVY–VASICEK MODELS AND THE LONG-BOND RETURN PROCESS
Dorje C. Brody, Lane P. Hughston, David M. Meier

Paper Summary

The article discusses a new way to model interest rates called the Lévy-Vasicek model. This model helps predict bond prices and interest rates more accurately. The researchers found that the pricing kernel of this model is reliable only if the long-term interest rate is positive.

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