Trolle, Anders B.; Schwartz, Eduardo S. - In: Review of Financial Studies 22 (2009) 5, pp. 2007-2057
We develop a tractable and flexible stochastic volatility multifactor model of the term structure of interest rates. It features unspanned stochastic volatility factors, correlation between innovations to forward rates and their volatilities, quasi-analytical prices of zero-coupon bond options,...