• Corpus ID: 248495933

On Unspanned Latent Risks in Dynamic Term Structure Models

@inproceedings{DubielTeleszynski2022OnUL,
  title={On Unspanned Latent Risks in Dynamic Term Structure Models},
  author={Tomasz Dubiel-Teleszynski and Konstantinos Kalogeropoulos and Nikolaos Karouzakis},
  year={2022}
}
We explore the importance of information hidden from the yield curve and assess how valuable the unspanned risks are to a real-time Bayesian investor seeking to forecast excess bond returns and maximise her utility. We propose a novel class of arbitrage-free unspanned Dynamic Term Structure Models (DTSM), that embed a stochastic market price of risk specification. We develop a suitable Sequential Monte Carlo (SMC) inferential and prediction scheme that guarantees joint identification of… 

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