ON THE DYBVIG‐INGERSOLL‐ROSS THEOREM

The Dybvig‐Ingersoll‐Ross (DIR) theorem states that, in arbitrage‐free term structure models, long‐term yields and forward rates can never fall. We present a refined version of the DIR theorem, where we identify the reciprocal of the maturity date as the maximal order that long‐term rates at earlier dates can dominate long‐term rates at later dates. The viability assumption imposed on the market model is weaker than those appearing previously in the literature.