In this paper we study empirically the implications of macroeconomic disagreement for the time variation in bond market risk premia. If there is a source of heterogeneity in the belief structure of the economy then differences in beliefs can affect equilibrium asset prices, and the dynamics of...

We propose a new modeling framework for the valuation of European options, in which dynamic short and long run volatility components drive the smile dynamics. The model state dynamics is driven by a matrix jump diffusion, provides efficient pricing formulas for plain vanilla options by means of...