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's (1921) distinction between uncertainty and risk. Along with the risky profit-maximizing scenario, identifying a second, off …
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the consumption-based specification of the risk premium. The relevance of Knightian uncertainty is inconsistent with all … REH models, regardless of how they specify the market's risk premium. Our evidence is also inconsistent with bubble …
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expectations. Classical financial markets under risk and no ambiguity are contained as special cases, including various forms of …
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expectations. Classical financial markets under risk and no ambiguity are contained as special cases, including various forms of …
Persistent link: https://www.econbiz.de/10011874707
It is shown how to construct an arbitrage-free short rate model under uncertainty about the drift and the volatility. The uncertainty is represented by a set of priors, which naturally leads to a G-Brownian motion. Within this framework, it is shown how to characterize the whole term structure...
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