“Thus far, it is assumed that moving average is the appropriate value to use for the expected value of the change in yield. However, there are theoretical arguments that suggest it is more appropriate to assume that the expected value of the change in yield will be zero.” --Vol. 5 Pg. 252 That being said it tells us to use the summation of Xt^2 divided by T-1 to find the variance and thus the Yield Volatility. My question is, are we to assume from now on and forever for this exam that we should use zero for the expected change in yield? (unless specifically told otherwise in the vignette or question)
I plan on assuming the change is zero unless I have reason to think otherwise.
Ok sounds good, just wanted to make sure i wasn’t the only one. Thanks!