Restrictions on the risk-pricing in dynamic term structure models (DTSMs) can unleash the power of no-arbitrage by … econometric framework for estimation of affine Gaussian DTSMs under restrictions on risk prices, which addresses the issues of a … the US Treasury yield curve. The data strongly favor tight restrictions on risk pricing: only level risk is priced, and …

asset prices and corporate default risk. Our model includes two empirically grounded nominal frictions: fixed nominal …

Theory predicts that the equilibrium real interest rate, r*t, and the perceived trend in inflation, ð*t, are key … dynamics of U.S. Treasury yields and risk pricing. Our evidence reveals that accounting for fluctuations in both r*t and ð …

rate. We reconcile the two approaches by introducing risk aversion and risk-neutral probabilities. We show that if the …

and probabilities are adjusted for risk, the two approaches are identical. What we would wish a reader to take away from …

spread while the return-forecasting (risk premium) factor is extracted by imposing a single factor structure on the one …-sectional fit of the yield curve. Second, we find that financial shocks, either in the form of liquidity or risk premium shocks …

The term structure of interest rates does not adhere to the expectations hypothesis, possibly due to a risk premium. We … consider the implications of a risk premium that arises from endogenous market segmentation driven by variable inflation rates …. In the absence of autocorrelation in inflation, the risk premium is constant. If inflation is correlated, however, the …