Abstract
The aim of this paper is to provide an alternative view on the term structure of interest rates in the light of game theory. First, the pricing of short- and long-term interest rates is formulated as an oligopolistic price-setting game in the financial market. Second, the equilibria in Bertrand and Stackelberg games are compared under a set of reasonable assumptions consistent with the distinctive features of the financial market. Third and finally, short- and long-term interest rates and their optimization are analytically investigated by means of applying the equilibrium properties of these games. The crucial roles of reaction function in forming the term structure are also emphasized.
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