This paper provides an evaluation of five methods, proposed in the literature, for extracting factors used in the estimation of Gaussian affine term structure models. We assert that irrespective of the method used for extracting state variables, cross-sectional and serial correlations exist in...

We study numerical (i.e. approximate) and analytical (i.e. exact) solutions to the system of Riccati ordinary differential equations (RODE) used in estimating the class of Gaussian affine term structure models (ATSM). We base our study on accuracy and convergence time, and find that usage of the...

This paper assesses the effects of autocorrelation on parameter estimates of affine term structure models (ATSM) when principal components analysis is used to extract factors. In contrast to recent studies, we design and run a Monte Carlo experiment that relies on the construction of a...

This paper studies common factor structure of bond returns from the US, UK and Germany. We estimate factors using both principal components analysis and common principal components analysis (CPCA), and construct factor mimicking portfolios to provide interpretations for some of these factors. A...