Linear-price term structure models

C. Gourieroux, A.M.E. Monfort*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review


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
Publication statusPublished - Dec 2013


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


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