Permalink: http://hdl.handle.net/1866/8860
Skewness risk and bond prices
Article [Version of Record]
Is part of
Cahier de recherche ; no. 2012-14.Publisher(s)
Université de Montréal. Département de sciences économiques.Author(s)
Affiliation
Abstract(s)
Statistical evidence is reported that even outside disaster periods, agents face negative consumption skewness, as well as positive inflation skewness. Quantitative implications of skewness risk for nominal loan contracts in a pure exchange economy are
derived. Key modeling assumptions are Epstein-Zin preferences for traders and asymmetric distributions for consumption and inflation innovations. The model is solved
using a third-order perturbation and estimated by the simulated method of moments.
Results show that skewness risk accounts for 6 to 7 percent of the risk premia depending
on the bond maturity.