Economic Theory

, Volume 9, Issue 1, pp 3–22 | Cite as

A term structure model with preferences for the timing of resolution of uncertainty

  • Darrell Duffie
  • Mark Schroder
  • Costis Skiadas
Research Articles


In this paper we present a model of the term structure of interest rates with imperfect information and stochastic differential utility, a form of non-additive recursive utility. A principal feature of recursive utility, that distinguishes it from time-separable expected utility, is its dependence on the timing of resolution of uncertainty. In our model, we parametrize the nonlinearity of recursive utility in a way that corresponds to preferences for the timing of resolution. This way we show explicitly the dependence of prices on the rate of information, as a consequence of the nature of utilities. State prices and the term structure of interest rates are obtained in closed form, and are shown to have a form in which derivative asset pricing is tractable. Comparative statics relating to the dependence of the term structure on the rate of information are also discussed.

JEL Classification Numbers

G12 D89 D99 


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Copyright information

© Springer-Verlag 1997

Authors and Affiliations

  • Darrell Duffie
    • 1
  • Mark Schroder
    • 2
  • Costis Skiadas
    • 3
  1. 1.Graduate School of BusinessStanford UniversityStanfordUSA
  2. 2.School of ManagementSUNY at BuffaloBuffaloUSA
  3. 3.J. L. Kellogg Graduate School of ManagementNorthwestern UniversityEvanstonUSA

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