Monetary authorities exercise control of domestic short term interest rates. We argue that models of the term structure of interest rates must take into account the consequences of this control if they are to capture important empirical features of interest rate dynamics. In particular, previous...

In this paper we apply the Kalman filter to a state formulation of a multi-factor term structure model allowing for measurement errors in the data. We estimate one and two factor models using panel data allowing the cross sectional and dynamic implications of the yield curve to be taken into...

We present a new family of yield curve models, termed "Conditional Gaussian". It provides both simplicity and extreme flexibility in constructing "market models". Almost any conditional co-variance structure - including features designed to capture volatility "skews" and/or dependence on past...

We present a subclass of Langetieg's (1980).linear Gaussian models of the term structure. The bond price is derived in terms of a finite set of state variables with correlated innovations. The subclass contains a reformulation of the double-decay model of Beaglehole and Tenney (1991), enabling...

A substantial applications literature on pricing by arbitrage has effectively restricted information to that arising solely from securities markets; return distributions are then governed solely by past prices. We reconsider pricing by arbitrage in markets rendered incomplete by arbitrary...