Equity options display a strong factor structure. The first principal components of the equity volatility levels, skews, and term structures explain a substantial fraction of the cross-sectional variation. Furthermore, these principal components are highly correlated with the S&P500 index option...

The existing literature finds that information not captured by traditional term structure factors helps predict excess bond returns. When estimating no-arbitrage affine term structure models, aligning in-sample and out-of-sample objective functions results in term structure factors that capture...

We propose a no-arbitrage term structure model with a Taylor rule and two macroeconomic variables, real activity growth and inflation, that each contain long-run and short-run components. Variance decompositions indicate that the impact of macroeconomic variables on the term structure differs...

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 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...

We propose no-arbitrage term structure models in which the volatility factors followGARCH processes. The models’ tractability is similar to that of canonical affine termstructure models, but they capture the conditional variances of yields much more accurately.We estimate a model with one...

Observable covariates are useful for predicting default under the natural measure, but several findings question their value for explaining credit spreads under the pricing measure. We introduce a discrete time no-arbitrage model with observable covariates, which allows for a closed form...