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YouTube T5-08: Convexity and risk premium impacts on shape of term structure

Nicole Seaman

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In this video, I'm going to try to illustrate all of the important ideas that are in Tuckman's Chapter 8: The Evolution of Short Rates and the Shape of the Term Structure. This chapter discusses the shape of the term structure and the key influences on the shape of the spot rate term structure. I'll start with pure expectations, where the term structure will reflect only expectations about the evolution of future spot rates, but that's going to be a naive theory. It might be convenient because we can say the term structure or spot race might be flat at 10%, but I'm not illustrating that here. I have non-flat curves, all of which are nonlinear because they incorporate the two influences on the shape of the term structure that is mathematically justified in Tuckman's Chapter eight. These are not easy ideas.


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