A non-parametric investigation of risk premia

Peroni, Chiara (2007): A non-parametric investigation of risk premia.

Abstract

This paper investigates features of credit risk using non-parametric techniques, studying determinants of risk premia using a non-parametric term-structure model of the corporate spread. The model, which measures the extra return of defaultable corporate bonds on their government counterparts, involves the rate of inflation, a key macroeconomic variable that is found to explain the spread non-linearly. This approach demonstrates the usefulness of non-linear approaches in contrast with standard linear approaches. The model is also useful to forecast the future course of the spread.

• Item Type: MPRA Paper
• Institution: university of east anglia
• Language: English
• Keywords: Risk premium, affine models, non-parametric regression
• Subjects: G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C14 - Semiparametric and Nonparametric Methods: General