The extended Kalman filter, which linearizes the relationship between security prices and state variables, is widely used in fixed income applications. We investigate if the unscented Kalman filter should be used to capture nonlinearities, and compare the performance of the Kalman filter to that...

The characterization of term premia movements continues to be a puzzle in finance though the term premia are used for return predictability and studying broader economic activity. We analyze the movements of the first and second conditional moments of term premia in a non-linear non- parametric...