This paper studies the term structure implications of a simple structural economy in which the representative agent displays ambiguity aversion, modeled by Multiple Priors Recursive Utility. Bond excess returns reflect a premium for ambiguity, which is observationally distinct from the risk...

We develop a continuous time general equilibrium yield curve model under ambiguity aversion. A moderate level of ‘aggregate ambiguity’ affects significantly the term structure and can drive the prices of common interest rate derivatives toward the patterns observed in fixed income markets....

We develop a continuous time general equilibrium model for the term structure of interest rates where economic agents are averse to model uncertainty and consider the possibility of a misspecified dynamic model for the latent risk factors driving interest rates. Aversion to model uncertainty is...

This paper studies the term structure implications of a simple structural economy in which the representative agent displays ambiguity aversion, modeled by Multiple Priors Recursive Utility. Bond excess returns reflect a premium for ambiguity, which is observationally distinct from the risk...