Abstract: A Theory of the Term Structure of Interest Rates and the Valuation of Interest-Dependent Claims

Abstract

The main focus of this study concerns the pricing of default-free bonds in a risky economy inhabited by risk-averse consumers. The methodology of the paper draws upon recent work in the fields of intertemporal asset pricing and valuation by arbitrage principles. We develop a general equilibrium model for the expected rates of return on “created financial assets” (such as bonds) dependent upon the risk attitudes of investors and the uncertain real investment opportunities available.