Feunou, Bruno; Fontaine, Jean-Sébastien; Taamouti, … - Bank of Canada - 2012
Expected returns vary when investors face time-varying investment opportunities. Longrun risk models (Bansal and Yaron … 2004) and no-arbitrage affine models (Duffie, Pan, and Singleton 2000) emphasize sources of risk that are not observable to … the econometrician. We show that, for both classes of models, the term structure of risk implicit in option prices can …