Economics, Econometrics and Finance
8 years ago

New model predicts bond prices in risky economy, impacting investor returns.

Journal of Financial and Quantitative Analysis
Abstract: A Theory of the Term Structure of Interest Rates and the Valuation of Interest-Dependent Claims
John C. Cox, Jonathan E. Ingersoll, Stephen A. Ross

Paper Summary

The article discusses how to price bonds in a risky economy with cautious investors. It uses a model based on asset pricing and arbitrage principles to predict returns on bonds based on investor risk preferences and uncertain investment opportunities.

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