BFS 2002

Contributed Talk

It is an interesting question to analyse the stochastic nature of long term rates in interest rate markets. In Dybvig-Ingersoll-Ross 1996 the authors show that long forward and zero coupon rates can never fall. In their proof they implicitly use an ``ergodicity'' assumption, which is economically reasonable, but does not hold in any arbitrage-free interest rate model. We prove without any additional assumption that long forward rates can never fall, if they exist.