Which of Madison's statement(s) regarding equilibrium and arbitrage-free term structure models is incorrect?
A) Statement 1 only
B) Statement 2 only
C) both Statement 1 and Statement 2

Question

Quizplus · Accepted Answer

Madison's incorrect statements regarding equilibrium and arbitrage-free term structure models could involve misunderstandings about how these models are constructed or applied. Equilibrium models focus on explaining the term structure of interest rates based on economic variables and preferences, while arbitrage-free models ensure no arbitrage opportunities exist in the pricing of bonds and other financial instruments. If both statements made by Madison are incorrect, it indicates a fundamental misunderstanding of either the theoretical underpinnings, assumptions, or applications of these models.

Which of Madison's Statement(s) Regarding Equilibrium and Arbitrage-Free Term Structure