Book: Fixed Income Securities: Tools for Today’s Markets | Authors: Bruce Tuckman & Angel Serrat | ISBN: 978-0-470-89169-8
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One-factor interest rate models have a fundamental problem. They assume that a single number, the spot interest rate, drives the entire yield curve. That means all rates of all maturities move together in lockstep. If the spot rate goes up by 1%, every other rate adjusts accordingly. The yield curve can shift up and down, but it cannot twist or tilt independently at different maturities.