The presence of risk premium is an issue that weakens the rational expectation hypothesis. This paper investigates changing behavior of time varying risk premium for holding 10 year maturity bond using a bivariate VARMA-DBEKK-AGARCH-M model. The model allows for asymmetric risk premia, causality...

Asymmetric information between the central bank and bond markets creates an inference problem that affects the behaviour of long interest rates. This paper employs a simple macroeconomic model with a time-varying infation target to illustrate the implications of asymmetry for the sensitivity of...

This paper reexamines the issue of unspanned stochastic volatility (USV) in bond markets and the puzzle of poor relative pricing between bonds and bond options. I make a distinction between the "weak USV" and the "strong USV" scenarios, and analyze the evidence for each of them. I argue that the...