Feldhütter, PeterHeyersahl-Larsen, ChristianIlleditsch, Philipp Karl2023-05-222018-10-282016-10-282017-12-11https://repository.upenn.edu/handle/20.500.14332/34535We introduce a reduced-form term structure model with closed-form solutions for yields where the short rate and market prices of risk are nonlinear functions of Gaussian state variables. The nonlinear model with three factors matches the time-variation in expected excess returns and yield volatilities of US Treasury bonds from 1961 to 2014. Yields and their variances depend on only three factors, yet the model exhibits features consistent with Unspanned Risk Premia (URP) and Unspanned Stochastic Volatility (USV).This is a pre-copyedited, author-produced PDF of an article accepted for publication in Review of Finance following peer review. The version of record Feldhutter, P., Heyerdahl-Larsen, C., Illeditsch, P., Risk Premia and Volatilities in a Nonlinear Term Structure Model (2016) is available online at: https://doi.org/10.1093/rof/rfw052Nonlinear Term Structure ModelsExpected Excess ReturnsStochastic VolatilityUnspanned Risk Premia (URP)Unspanned Stochastic Volatility (USV)Finance and Financial ManagementArticle