This paper tests for asymmetric mean reversion in European short-term interest rates using a combination of the interest rate models introduced by Longstaff and Schwartz (Longstaff, F.A., Schwarts, E.S. (1992) Interest rate volatility and the ferm structure: A two factor general equilibrium...

The main goal of this paper is to develop a model of the term structure of interest rates, based on a Black-Sholes type of arbitrage and study its properties. In order to achieve this objective two state variables are considered: the long-term interest rate l(t), and the spread (difference...