Highly Influenced

# Can Interest Rate Volatility be Extracted from the Yield Curve ? A Test Of Unspanned Stochastic Volatility

@inproceedings{CollinDufresne2002CanIR, title={Can Interest Rate Volatility be Extracted from the Yield Curve ? A Test Of Unspanned Stochastic Volatility}, author={Pierre Collin-Dufresne and Robert Michael Goldstein and Chris Stephen Jones}, year={2002} }

- Published 2002

Most affine models of the term structure with stochastic volatility predict that the variance of the short rate is simultaneously a linear combination of yields and the quadratic variation of the spot rate. However, we find that the A1(3) model generates a time series for the variance state variable that is strongly negatively correlatedwith a GARCH estimate of the quadratic variation of the spot rate process. We then investigate affine models that exhibit ‘unspanned stochastic volatility (USV… CONTINUE READING