Term Structure of Interest Rates Review of a Theory of the Term Structure of Interest Rates (CIR)

Term structure of interest rates is a calculation of the relationship between the yields on securities which only differ in their term to maturity. This relationship has several determinants among them interest rates and yield curve. Economists and investors believe that the shape of the yield curve reflects the market's future expectation for interest rates and the conditions for monetary policy. This paper reviews the work of Cox, Ingersoll and Ross of 1985 in their handling of term structure of interest rates as well as look at different models of term structure of interest rates both single factor and multifactor models.