"Equilibrium" models of the term-structure
A)Are general equilibrium models of all securities in the economy.
B)Are models which match observed term structure curves perfectly.
C)Include such models as Vasicek (1977)and Cox,Ingersoll,and Ross (185).
D)Are models which ensure that "disequilibrium" phenomena,such as negative interest rates,cannot occur.

Question

Quizplus · Accepted Answer

Equilibrium models of the term-structure, such as Vasicek (1977) and Cox, Ingersoll, and Ross (1985), are models that assume an equilibrium state in the economy and attempt to explain the observed term structure of interest rates based on this equilibrium. These models do not perfectly match the observed term structure but provide a framework for understanding it. They are not designed to prevent negative interest rates or other "disequilibrium" phenomena.

"Equilibrium" Models of the Term-Structure