This article is a critical survey of models designed for pricing fixed-income securities and their associated term structures of market yields. Our primary focus is on the interplay between the theoretical specification of dynamic term structure models and their empirical fit to historical changes in the shapes of yield curves. We begin by overviewing the dynamic term structure models that have been fit to treasury or swap yield curves and in which the risk factors follow diffusions, jump-diffusion, or have "switching regimes." Then the goodness-of-fit of these models is assessed relative to their abilities to (i) match linear projections of changes in yields onto the slope of the yield curve; (ii) match the persistence of conditional volatilities, and the shapes of term structures of unconditional volatilities, of yields; and (iii) to reliably price caps, swaptions, and other fixed-income derivatives. For the case of defaultable securities we explore the relative fits to historical yield spreads.

ABSTRACT Beliefs of professional forecasters are benchmarked against those of a Bayesian econometrician who is learning about the unknown dynamics of the bond risk factors. Consistent with rational Bayesian learning, the forecast errors of individual professionals and are comparably predictable over the business cycle. The secular and cyclical patterns of professionals' forecasts relative to those of are explored in depth. Inconsistent with many models with belief dispersion, the relationship between professionals' yield disagreement and their matched disagreements about macroeconomic fundamentals is very weak.

Kenneth J. Singleton, Adjustment Costs and Capital Asset Pricing: Discussion, The Journal of Finance, Vol. 40, No. 3, Papers and Proceedings of the Forty-Third Annual Meeting American Finance Association, Dallas, Texas, December 28-30, 1984 (Jul., 1985), pp. 705-709

Variance bounds are derived for general present-value relations involving the expected future values of any finite number of variables. The estimators of these bounds and the variance being bounded are then shown to have a joint distribution converging to that of the multivariate normal, with moments which can be consistently estimated from the data. As a special case of these results, it is shown that expectations models of the term structure imply upper and lower bounds on the variance of the long-term rate. These bounds are used to test a rational expectations model of long-term U.S. Treasury bond yields.

Variance bounds are derived for general present-value relations involving the expected future values of any finite number of variables. The estimators of these bounds and the variance being bounded are then shown to have a joint distribution converging to that of the multivariate normal, with moments which can be consistently estimated from the data. As a special case of these results, it is shown that expectations models of the term structure imply upper and lower bounds on the variance of the long-term rate. These bounds are used to test a rational expectations model of long-term U.S. Treasury bond yields.