We introduce the class of linear-rational term structure models in which the state price density is modeled such that bond prices become linear-rational functions of the factors. This class is highly tractable with several distinct advantages: i) ensures nonnegative interest rates, ii) easily...

With nominal interest rates currently at or near their zero lower bound (ZLB) in many major economies, it has become untenable to apply Gaussian affine term structure models (GATSMs) while ignoring their inherent non-zero probabilities of negative interest rates. In this article I modify GATSMs...

With nominal interest rates near the zero lower bound (ZLB) in many major economies, it is theoretically untenable to apply Gaussian affine term structure models (GATSMs) while ignoring their inherent material probabilities of negative interest rates. I propose correcting that deficiency by...

I propose a simple framework that quantifies the stance of monetary policy as a 'shadow short rate' when the term structure is near the zero lower bound. I demonstrate my framework with a one-factor model applied to Japanese data, including an intuitive economic interpretation of the results,...

With nominal interest rates near the zero lower bound (ZLB) in many major economies, it is theoretically untenable to apply Gaussian affine term structure models (GATSMs) while ignoring their inherent material probabilities of negative interest rates. I correct that deficiency by adjusting the...

The zero-coupon yield curve is a common input for most financial purposes. The authors consider three popular yield curve datasets, and explore the extent to which the decision as to what dataset to use for an application may have implications on the results. The paper illustrates why such...

This paper reexamines the issue of unspanned stochastic volatility (USV) in bond markets and the puzzle of poor relative pricing between bonds and bond options. I make a distinction between the "weak USV" and the "strong USV" scenarios, and analyze the evidence for each of them. I argue that the...

We propose a class of time-separable and state-dependent preferences for asset pricing. In conjunction with the affine structure of the joint dynamics of state variables, aggregate consumption and dividend, an equilibrium model with these preferences yields closed-form solutions of bonds and...

With nominal interest rates near the zero lower bound (ZLB) in many major economies, it has become untenable to apply Gaussian affine term structure models (GATSMs) while ignoring their inherent theoretical deficiency of non-zero probabilities of negative interest rates. In this article I...

We derive a general joint affine term structure model of US government bond yields and the convenience yields on physical commodities. We apply this framework separately to oil and gold. Our results show clear links between bond and commodity markets, since bond factors play a significant role...