yield volatility. Sandmann and Sondermann derived conditions for the calibration to be feasible when the conditional short … rate volatility is used. In this paper conditions are investigated under which calibration to the yield volatility is … the yield volatility breaks down for apparently plausible inputs. In implementing the calibration from period n to period …

their real and inflation counterparts. We extract these terms from the yield curve of the U.S., Euro Area, U.K., and Japan … using a term structure model that explicitly captures the interrelation between yield factors and macroeconomic conditions … while allowing for aggregate stochastic volatility. We find that the bulk of yield dynamics comes from short rate …