The main object of this working paper is twofold; firstly, a general model for the variation in the term structure of interest rates, and secondly a universal return model will be defined that combines the expected rate-of-return (ROR) with the pre-defined shift functions. This general model of...

The no arbitrage conditions are derived in the explicit form for the market, where the zero coupons bonds of various maturities are accessible for the investors to draw up the portfolios. It is supposed, that the investor at any moment of time has a possibility to make the self-financed...

Sovereigns are active issuers both of foreign and domestic debt. The former, composed mainly of internationally traded hard currency denominated Eurobonds, serves as a direct benchmark for the creditworthiness of the country. The latter, represented by local treasuries, although considered a...

We derive the class of arbitrage-free affine dynamic term structure models that approximate the widely-used Nelson-Siegel yield-curve specification. Our theoretical analysis relates this new class of models to the canonical representation of the three-factor arbitrage-free affine model. Our...

We derive the discrete-time arbitrage-free Nelson-Siegel class of term structure models with an exact solution and proof of uniqueness. We design a fast and reliable estimation procedure based on reduced-dimension optimization with multistep embedded regressions. After an analytical...

Some generalizations of the Nelson and Siegel (1987) models are widely applied in central banks and financial institutions. This paper introduces a discrete-time version of the generalized Nelson-Siegel term structure models proposed by Svesson (1995) and Björk and Christensen (1999). As in...

Using a stochastic discount factor approach, we derive the exact solution for arbitrage-free bond yields for the case that the short-term interest rate follows a threshold process with the intercept switching endogenously. The yield functions, mapping the one-month rate into n-period yields,...

The Svensson generalization of the popular Nelson-Siegel term structure model is widely used by practitioners and central banks. Unfortunately, like the original Nelson-Siegel specification, this generalization, in its dynamic form, does not enforce arbitrage-free consistency over time. Indeed,...

This study outlines an affine term structure model (ATSM) of TIPS that decomposes yields into real expected rates, real term premiums, and liquidity premiums. The estimation incorporates an observable liquidity factor that more comprehensively captures limits to arbitrage implied by yield curve...