Some Empirical Estimates of the Risk Structure of Interest Rates

Authors

  • ODED SARIG,

  • ARTHUR WARGA

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    • Sarig is from the Department of Finance, University of Tel-Aviv, and Warga is from the Department of Finance, Columbia University. Thanks are due to Greg Batey, Avner Kalay, Suresh Sundaresan, an anonymous referee, and the Editors, David Mayers and René Stulz, for helpful comments. The Institute of Chartered Financial Analysts provided partial funding for this project. Arthur Warga wishes to thank Howard Clark, Jr. for a grant, part of which was used to complete this work.


ABSTRACT

This paper investigates the risk structure of interest rates using pure discount bonds. The most striking feature of our estimates of default-risk premia is the resemblance of their time profile to the theoretical time profile obtained by Merton (1974).

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