A VaR-based Model for the Yield Curve: Wilmott Magazine Article – Ruben D. Cohen

An intuitive model for the yield curve, based on the notion of value-at-risk, is presented. It leads to interest rates that hedge against potential losses incurred from holding an underlying risky security until maturity. This result is also shown to tie in directly with the Capital Asset Pricing Model via the Sharpe Ratio.

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