II. Module 6 Homework 4 [practice]: Continuous-Time Term Structure
- Due No due date
- Points 10
- Questions 4
- Time Limit None
- Allowed Attempts 2
Instructions
We often think of the yield curve as having at least one factor that is a level factor with a parallel shift. In this problem, we will see this is impossible -- all yield curve factors must eventually die out, and the asymptotic long rate must be constant -- if enough securities are traded. The buzzword is "convexity," but we'll see the problem directly.