Affine Term Structure Models

Affine Term Structure Models are mathematical frameworks used to describe how interest rates on bonds of different maturities evolve over time. They assume that key factors influencing interest rates, such as economic conditions or market expectations, change in a way that allowstheir effects on bond prices to be represented through simple, linear (affine) formulas. This makes the models computationally efficient and flexible, enabling economists and financial professionals to analyze, forecast, and price bonds and interest rate derivatives accurately based on current data.