This paper suggests a new approach for estimating linear and non-linear dynamic term structure models with latent factors. We impose no distributional assumptions on the factors which therefore may be non-Gaussian. The novelty of our approach is to use many observables (yields or bond prices) in...

We develop a new empirical approach to term structure analysis that allows testing for time-varying risk premiums and arbitrage opportunities in models with both unobservable factors and factors identified as the innovations to observed macroeconomic variables. Factors may play double roles as...

We show that improved hedging of bond portfolios can be achieved by matching generalized durations that are parametrized according to a parsimonious yield curve shape which is dynamically consistent with a new term structure model with stochastic level, slope, and curvature factors. Performance...