On the presence of unspanned volatility in European interest rate options

In a recent paper, Collin-Dufresne and Goldstein (2002) show that the movements of the yield curve and of interest rate derivatives are mostly uncorrelated, advocating the presence of unspanned volatility. This letter shows that their results can be explained in the framework of a Gaussian HJM model with humped term-structure volatility. This implies that hedging interest rate derivatives with interest rate swaps is not ruled out.

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Year of publication:	2005
Authors:	Reno, Roberto ; Uboldi, Adamo
Institutions:	Institut für Schweizerisches Bankwesen <Zürich>
Subject:	Volatilität \| Derivat <Wertpapier> \| Zinsstruktur \| Term structure model \| Zinsswap

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Extent:	354304 bytes 5 p. application/pdf
Series:	Institut für Schweizerisches Bankwesen Zürich - Working Paper Series Working Paper ; 225 (2005)
Type of publication:	Book / Working Paper
Language:	English
Classification:	Employment of capital, capital investment planning and estimate of investment profitability ; Individual Working Papers, Preprints ; Europe. General Resources
Source:	USB Cologne (business full texts)

Persistent link: https://www.econbiz.de/10005858864