Explain why in practice arbitrage-free models are typically used rather than equilibrium models

What will be an ideal response?

Interest-rate models fall into two general categories: arbitrage models and equilibrium models. In practice, arbitrage-free models are typically used because they are easier to implement than equilibrium models.To illustrate, there are two concerns with implementing and using equilibrium models. First, many economic theories start with an assumption about the class of utility functions to describe how investors make choices. Equilibrium models are no exception: the model builder must specify the assumed class of utility functions. Second, these models are not calibrated to the market so that the prices obtained from the model can lead to arbitrage opportunities in the current term structure.