Abstract
A nonlinear expectations model of the term structure with time-varying risk premia is specified, estimated, and tested, allowing for conditional heteroskedasticity and serial correlation in the disturbance terms. The model is subsequently linearized by means of a stationary, lognormal distributional assumption, and a constant risk premium results. Relative to the nonlinear model, the loglinear model performs poorly. Further investigation suggests the importance of taking both a time-varying risk premium and conditional heteroskedasticity in disturbance terms into account when formulating and estimating the term structure. Copyright 1989 by Ohio State University Press.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
