Notes on the Yield Curve

43 Pages Posted: 17 Sep 2018

See all articles by Ian Martin

Ian Martin

London School of Economics & Political Science (LSE) - Department of Finance

Stephen A. Ross

Massachusetts Institute of Technology (MIT) - Sloan School of Management; Yale University - International Center for Finance

Date Written: September 2018

Abstract

We study the properties of the yield curve under the assumptions that (i) the fixed-income market is complete and (ii) the state vector that drives interest rates follows a finite discrete-time Markov chain. We focus in particular on the relationship between the behavior of the long end of the yield curve and the recovered time discount factor and marginal utilities of a pseudo-representative agent; and on the relationship between the "trappedness" of an economy and the convergence of yields at the long end.

Keywords: Cheeger inequality, eigenvalue gap, recovery theorem, term structure, traps, Yield Curve

JEL Classification: G12

Suggested Citation

Martin, Ian W. R. and Ross, Stephen A., Notes on the Yield Curve (September 2018). CEPR Discussion Paper No. DP13176, Available at SSRN: https://ssrn.com/abstract=3250792

Ian W. R. Martin (Contact Author)

London School of Economics & Political Science (LSE) - Department of Finance ( email )

United Kingdom

HOME PAGE: http://personal.lse.ac.uk/martiniw/

Stephen A. Ross

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

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Cambridge, MA 02142
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Yale University - International Center for Finance

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United States

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