In the aftermath of the crisis, sovereign risk premium differentials have been increasingly widening. Although the perceived risk for core countries remains relatively low, financial markets seem to discriminate among peripheral economies requiring higher risk premia than what is justified by...

The marginal cost of aggregate fluctuations has a term structure that is a simple transformation of the term structures of equity and interest rates. I extract evidence from index option markets to infer a downward-sloping, volatile and procyclical term structure of welfare costs. On average,...

This paper introduces a novel kind of interest-rate model offering simple analytical pricing formulas for swaps, futures, swaptions, caps and floors. The model is based on an original use of regime-switching features that makes it consistent with the non-linear behavior of interest rates. In...

We build an Affine Term Structure Model that provides non-negative yields at any maturity and that is able to accommodate a short-term rate that stays at the zero lower bound (ZLB) for extended periods of time while longer-term rates feature high volatilities. We introduce these features through...

This paper illustrates how a parsimonious macro-finance model can be exploited to investigate the frequency-domain properties of debt service implied by various financing strategies. This original approach is valuable to public debt managers seeking to assess the fiscal-hedging properties of the...

In this paper, we propose a model of the joint dynamics of euro-area sovereign yield curves. The arbitrage-free valuation framework involves five factors and two regimes, one of the latter being interpreted as a crisis regime. These common factors and regimes explain most of the fluctuations in...

This paper develops an arbitrage-free affine term structure model of potentially defaultable sovereign bonds to model a cross-section of eight euro area government bond yield curves since January 1999. The existence of a common monetary policy under European Monetary Union determines the short...

In this paper, we present a general discrete-time affine framework aimed at jointly modeling yield curves associated with different debtors. The underlying fixed-income securities may differ in terms of credit quality and/or in terms of liquidity. The risk factors follow conditionally Gaussian...

A large part of the term structure literature interprets the first underlying factors as a level factor, a slope factor, and a curvature factor. In this paper we consider factor models interpretable as a level factor model, a level and a slope factor model, respectively. We prove that such...

This paper presents a no-arbitrage model of the yield curve that explicitly incorporates the central-bank policy rate. After having estimated the model using daily euro-area data, I explore the behavior of risk premia at the short end of the yield curve. These risk premia are neglected by the...