We give an overview of a broad class of models designed to capture stochastic volatility in financial markets, with illustrations of the scope of application of these models to practical finance problems. In a broad sense, this model class includes GARCH, but we focus on a narrower set of...

We investigate whether bonds span the volatility risk in the U.S. Treasury market, as predicted by most `a±ne' term structure models. To this end, we construct powerful and model-free empirical measures of the quadratic yield variation for a cross-section of ¯xed-maturity zero-coupon bonds...