This paper documents large micro-heterogeneity and forecasting skill in the cross-section of survey based bond risk premia. We reject informationally constrained rational expectations but show a learning model distorted by sentiment is consistent with the data. Aggregating, we propose a belief...

The volatility smile changed drastically around the crash of 1987 and new option pricing models have been proposed in order to accommodate that change. Deterministic volatility models allow for more flexible volatility surfaces but refrain from introducing additional risk-factors. Thus, options...