Market prices of risk question
Posted: November 5th, 2010, 11:15 am
You think you understand something and then it bites you.Market price of risk in interest rates is (for most times) negative. This results in real world prices which are higher than risk neutral. If this is the case won't yields be lower in under real world pricing? (and higher in risk neutral?) This would suggest an investor isn't rewarded for holding risk which is what i would like your thoughts on.I've read FAQ but it doesn't seem to clear this up.Thanks