Linear-price term structure models

C. Gourieroux, A.M.E. Monfort

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

We characterize the term structure models in which the zero-coupon prices are linear functions of underlying factors. These models are called Linear-price Term Structure Models (LTSM). We provide two types of LTSM where the observable factors predict regimes which are not observed by the investor. These hidden regimes are represented by a Markov chain, which features either an exogenous, or an endogenous dynamics. We illustrate the possible term structure patterns, their evolutions, in particular their ability to stay close to a zero lower bound.
Original languageEnglish
Pages (from-to)24-41
Number of pages18
JournalJournal of Empirical Finance
Volume24
DOIs
Publication statusPublished - Dec 2013

Keywords

  • Linear term structure model
  • Hidden Markov chain
  • Finite dimensional dependence
  • Binding floor
  • INTEREST-RATES

Cite this