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Linear Factor Models and the Term Structure of Interest Rates

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  • Emmanuelle Clément
  • Christian Gourieroux
  • Alain Monfort

Abstract

The aim of this paper is the determination of the term structure of interest rates from observations of the prices of fixed-income bonds. We first introduce factor models to describe the evolution of prices of zero-coupon bonds, and we derive the constraints induced by the arbitrage free condition. The second part of the paper is concerned with the statistical problems: identification, parameter estimation, test of the arbitrage free hypothesis, valuation of various financial assets.

Suggested Citation

  • Emmanuelle Clément & Christian Gourieroux & Alain Monfort, 1995. "Linear Factor Models and the Term Structure of Interest Rates," Annals of Economics and Statistics, GENES, issue 40, pages 37-65.
    • Handle: RePEc:adr:anecst:y:1995:i:40:p:37-65
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    File URL: http://www.jstor.org/stable/20076015
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