Abstract.
The Duffie and Kan (1966) model, which can be considered as the most general affine term structure formulation, was originally specified in terms of risk-adjusted stochastic processes for its state variables. The goal of the present paper is to derive a Duffie and Kan (1966) model’ specification under the physical probability measure that is compatible with the formulation given by the authors under the equivalent martingale (“money market account”) measure. For that purpose, the Duffie and Kan (1966) model will be fitted into a general equilibrium monetary framework. The resulting analytical solution for the vector of factor’ risk premiums enables the econometric estimation of the model’ parameters using a “time-series” or a “panel-data” approach, and nests, as special cases, several other specifications already proposed in the literature.
Similar content being viewed by others
Author information
Authors and Affiliations
Corresponding author
Additional information
Received: November 2002, Accepted: February 2004,
JEL Classification:
E43, G11, G12
Financial support by FCT’s research grant PRAXISXXI/BD/5712/95 is gratefully acknowledged.
About this article
Cite this article
Nunes, J.P.V. A general equilibrium framework for the affine class of term structure models. Portuguese Economic Journal 3, 15–48 (2004). https://doi.org/10.1007/s10258-004-0027-x
Issue Date:
DOI: https://doi.org/10.1007/s10258-004-0027-x