Bond markets differ in one fundamental aspect from standard stock
markets. While the latter are built up to a finite number of trade
assets, the underlying basis of a bond market is the entire term
structure of interest rates: an infinite-dimensional variable which is
not directly observable. On the empirical side, this necessitates
curve-fitting methods for the daily estimation of the term structure.
Pricing models, on the other hand, are usually built upon stochastic
factors representing the term structure in a finite-dimensional state
space. Written for readers with knowledge in mathematical finance (in
particular interest rate theory) and elementary stochastic analysis,
this research monograph has threefold aims: to bring together estimation
methods and factor models for interest rates, to provide appropriate
consistency conditions and to explore some important examples.