Arbitrage-free DTSMs with unspanned latent risks, estimated via SMC, show that these factors improve out-of-sample bond return forecasts and deliver economic utility gains over yield-curve benchmarks.
The explained variables are individual latent factors Zj, t and their componentsE[Zj, t|Pt] and ˜RP Z j, t, j∈{ 1
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Dynamic Inference in Term Structure Models with Unspanned Latent Risks
Arbitrage-free DTSMs with unspanned latent risks, estimated via SMC, show that these factors improve out-of-sample bond return forecasts and deliver economic utility gains over yield-curve benchmarks.