DISCUSSION.

The author comments on a paper in the current issue contributed by Michael J. Brennan and Eduardo S. Schwartz. Insofar as the paper determines intermediate interest rates by assuming long and short rates, it reduces the dimensionality of term structure rather than presents a theory for it. Brennan and Schwartz also give a discrete version of the continuous, stochastic model for long- and short-term rates, an approximation the author is not sure can be justified. All the same, their work constitutes an important contribution to bond pricing.