significant price jump component in variance swap rates. A model-based analysis shows that investors' willingness to ensure … against volatility risk increases after a market drop. This effect is stronger for short horizons and more persistent for long …

In a tractable stochastic volatility model, we identify the price of the smile as the price of the unspanned risks … traded in SPX option markets. The price of the smile reflects two persistent volatility and skewness risks, which imply a …-form and structural models of stochastic volatility …

advantages: i) ensures nonnegative interest rates, ii) easily accommodates unspanned factors affecting volatility and risk …, volatility, and risk premium dynamics — including when interest rates are close to the zero lower bound …

and the optimal exercise strategies in terms of swap rates for both fixed-rate payer and receiver swaps. Finally, we show …

domestic volatility after good shocks but a bad hedge after crashes …

Empirical evidence suggests that fixed income markets exhibit unspanned stochastic volatility (USV), that is, that one … cannot fully hedge volatility risk solely using a portfolio of bonds. While Collin-Dufresne and Goldstein (2002) showed that …

We develop a discrete-time stochastic volatility option pricing model, which exploits the information contained in high …-frequency data. The Realized Volatility (RV) is used as a proxy of the unobservable log-returns volatility. We model its dynamics by … competing time-varying (i.e. GARCH-type) and stochastic volatility pricing models. The pricing improvement can be ascribed to …

are split into three components. The first component allows us to match the volatility term structure, the second … generates stochastic volatility, and the third one accommodates for stochastic skew. The model is parsimonious, yet flexible … enough to accommodate the behavior of both caps and swaptions well. For the joint estimation we use a comprehensive dataset …

by a quadratic diffusion function. The variance swap curve is quadratic in the state variable and available in closed …