There is strong empirical evidence that long-term interest rates contain a time-varying risk premium. Options may contain valuable information about this risk premium because their prices are sensitive to the underlying interest rates. We use the joint time-series of swap rates and interest rate...

Based on a family of discrepancy functions, we derive nonparametric stochastic discount factor (SDFs) bounds that naturally generalize variance (Hansen and Jagannathan, 1991), entropy (Backus, Chernov and Martin, 2011), and higher-moment (Snow, 1991) bounds. These bounds are especially useful to...

We characterize a set of risk-neutral measures associated with a comprehensive class of risk averse investors. From this set, we show how to construct option price bounds and recover the implied gamma: a parameter uniquely identifying the marginal investor pricing a given option. Empirically, we...

In this paper we approximate the risk factors of a polynomial arbitrage-free dynamic term structure model by running a sequential set of linear regressions independent across time. This approximation avoids the cost of a full optimization procedure allowing for a simple method to extract the...

We develop a new approach to evaluate asset pricing models (APMs) based on Minimum Discrepancy (MD) projections that generalize the Hansen-Jagannathan (HJ, 1997) distance to account for an arbitrary number of moments of asset returns. The Minimum Discrepancy projections correct APMs to become...

Hansen and Jagannathan (1997) compare misspecified asset pricing models based on least-square projections on a family of admissible stochastic discount factors. We extend their fundamental contribution by considering Minimum Discrepancy (MD) projections where misspecification is measured by...

Hansen and Jagannathan (1997) compare misspecified asset pricing models based on least-square projections on a family of admissible stochastic discount factors. We extend their fundamental contribution by considering Minimum Discrepancy (MD) projections where misspecification is measured by...

Fixed income options are frequently adopted by companies to hedge interest rate risk. Their payoff dependence on the cumulative short-term rate makes them particularly informative about interest rate volatility risk. Based on a joint dataset of bonds and Asian interest rate options, we study the...

Parametric term structure models have been successfully applied to numerous problems in fixed income markets, including pricing, hedging, managing risk, as well as to the study of monetary policy implications. In turn, dynamic term structure models, equipped with stronger economic structure,...

There is strong empirical evidence that long-term interest rates contain a time-varying risk premium. Options may contain valuable information about this risk premium because their prices are sensitive to the underlying interest rates. We use the joint time series of swap rates and interest rate...