The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Affine Term Structure Models

  • Michael W. Brandt
  • David A. Chapman
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_2850

Abstract

An affine term structure model hypothesizes that interest rates, at any point in time, are a time-invariant linear function of a small set of common factors. This class of models has proven to be a remarkably flexible structure for examining the dynamics of default-risk free bonds, and as a result affine modelling has become the dominant framework for term structure research since the early 1980s.

Keywords

Affine term structure models Arbitrage opportunities Bonds Brownian motion Continuous-time models Expectations hypothesis Generalized method of moments Itô integral Liquidity preference Maximum likelihood Multifactor models Ornstein–Uhlenbeck processes Preferred habitat theory Principal components Single-factor models State price deflators Term premiums Term structure of interest rates Zero-coupon bonds 

JEL Classification

D4 D10 
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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Michael W. Brandt
    • 1
  • David A. Chapman
    • 1
  1. 1.