Purportedly consistent with "risk parity" (RP) asset allocation, recent studies document compelling "low risk" trading strategies that exploit a persistently negative relation between Sharpe ratios (SRs) and maturity along the U.S. Treasury (UST) term structure. This paper extends this evidence...

Forward foreign exchange contracts embed not only expected depreciation but also a sizable premium, which complicates inferences about anticipated returns. This study derives arbitrage-free affine forward currency models (AFCMs) with closed-form expressions for both unobservable variables. Model...

A small but ambitious literature uses affine arbitrage-free models to estimate jointly U.S. Treasury term premiums and the term structure of equity risk premiums. Within this approach, this paper identifies the parameter restrictions that are consistent with a simple dividend discount model,...

Although “betting against beta” with government bonds (BABgov) seems profitable, questions remain. First, to what extent are BABgov profits an anomaly? Previous studies do not address routine valuation frameworks, such as term-structure models or principal components analysis. Second,...

Affine term structure models in which the short rate follows a jump-diffusion process are difficult to solve. Without analytical answers to the partial difference differential equation (PDDE) for bond prices implied by jump-diffusion processes, one must find a numerical solution to the PDDE or...