search query: @author Hördahl, P. / total: 2
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| Author: | Hördahl, P. Vestin, D. |
| Title: | Interpreting implied risk-neutral densities: The role of risk premia |
| Journal: | Review of finance
2005 : VOL 9:1, p. 97-137 |
| Index terms: | Finance Investments Interest rates Models |
| Language: | eng |
| Abstract: | This paper examines differences between risk-neutral (hereafter as: r-n.) and objective probability densities (here as: o-p-ds.) of future interest rates (here as: i-rts). The identification and quantification of these differences are important when risk-neutral densities (RNDs) are used as indicators of actual beliefs of investors. A multi-factor essentially affine modeling framework is applied to German time-series and cross-section term structure data to identify both the r-n. and the objective term structure dynamics. Important differences are found btw. r-n. and objective distributions due to risk premia in bond prices. After more reported results it is concluded that one should be cautious in interpreting RNDs in terms of expectations. |
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