Term Structure

From Open Risk Manual


Term Structure denotes a structured grouping of market observables (or risk parameters), in particular of fixed income (debt) instruments and products that are linked and ordered by an underlying term property (duration, maturity). Typically applied to collection of rates, such as interest rates, or bond yields with different terms to maturity, such that a Yield Curve may be constructed for the structure


The term structure may span a wide variety of time windows. It is not required that the time intervals are uniformly spaced. The term structure reflects expectations of market participants about future changes in interest rates and their assessment of monetary policy conditions.

Risk-free Term Structure

Risk-free term structures tend to span the longest time windows (e.g. up to 50 years)

Credit Term Structure

Credit term structures tend to span a time period relevant for credit risk (up to 10 years)

Issues and Challenges

Term structure refers to a set of discrete points; elements are ordered by time. Restrictions on the rate (see above) and a point in time, paired together, and then ordered in a structured collection is how this should ultimately be modeled. Then the concept of yield curve would be a child of term structure, for calculation of net present value, for example.

See Also


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