Linear-price term structure models

Christian Gourieroux and Alain Monfort

Journal of Empirical Finance, 2013, vol. 24, issue C, 24-41

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.

Keywords: Linear term structure model; Hidden Markov chain; Finite dimensional dependence; Binding floor (search for similar items in EconPapers)
JEL-codes: C58 G12 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:24:y:2013:i:c:p:24-41

DOI: 10.1016/j.jempfin.2013.07.004

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