We develop a model of nominal and real bond yield curves that has four stochastic drivers but seven factors: three factors primarily determine the cross-section of yields, whereas four volatility factors solely determine risk premia. The model is estimated using nominal Treasury yields, survey...

This paper develops a family of option pricing models when the underlying stock price dynamic is modelled by a regime switching process in which prices remain in one volatility regime for a random amount of time before switching over into a new regime. Our family includes the regime switching...