How to Extract Short-Rate Expectations from the Extended Vasicek Model

This paper deals with how reasonable it is to accept the pure expectations hypothesis as a guide to the expected future development of the economy as indicated by the expected future short rate. At this aim it tries to extract short rate expectations from the observable term structure of interest rates, short rate volatility and market prices of bund-futures options within the framework of an extended version of Vasicek's prominent 1977 one-factor-no-arbitrage model. Doing so has its merits in teaching too because it allows to precisely disentangle the interwined concepts of the market price of zerobond price risk on the one hand and term or liquidity premium on the other