NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Anders B. Trolle

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Working Papers

November 2010An Empirical Analysis of the Swaption Cube
with Eduardo S. Schwartz: w16549
We use a comprehensive database of inter-dealer quotes to conduct the first empirical analysis of the dynamics of the swaption cube. Using a model independent approach, we establish a set of stylized facts regarding the cross-sectional and time-series variation of conditional volatility and skewness of the swap rate distributions implied by the swaption cube. We then develop and estimate a dynamic term structure model that is consistent with these stylized facts, and use it to infer volatility and skewness of the risk-neutral and physical swap rate distributions. Finally, we investigate the fundamental drivers of these distributions. In particular, we find that volatility, volatility risk premia, skewness, and skewness risk premia are significantly related to the characteristics of agents’...
December 2006Unspanned Stochastic Volatility and the Pricing of Commodity Derivatives
with Eduardo S. Schwartz: w12744
We conduct a comprehensive analysis of unspanned stochastic volatility in commodity markets in general and the crude-oil market in particular. We present model-free results that strongly suggest the presence of unspanned stochastic volatility in the crude-oil market. We then develop a tractable model for pricing commodity derivatives in the presence of unspanned stochastic volatility. The model features correlations between innovations to futures prices and volatility, quasi-analytical prices of options on futures and futures curve dynamics in terms of a low-dimensional affine state vector. The model performs well when estimated on an extensive panel data set of crude-oil futures and options.

Published: Anders B. Trolle & Eduardo S. Schwartz, 2009. "Unspanned Stochastic Volatility and the Pricing of Commodity Derivatives," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 22(11), pages 4423-4461, November.

June 2006A General Stochastic Volatility Model for the Pricing and Forecasting of Interest Rate Derivatives
with Eduardo S. Schwartz: w12337
We develop a tractable and flexible stochastic volatility multi-factor model of the term structure of interest rates. It features correlations between innovations to forward rates and volatilities, quasi-analytical prices of zero-coupon bond options and dynamics of the forward rate curve, under both the actual and risk-neutral measure, in terms of a finite-dimensional affine state vector. The model has a very good fit to an extensive panel data set of interest rates, swaptions and caps. In particular, the model matches the implied cap skews and the dynamics of implied volatilities. The model also performs well in forecasting interest rates and derivatives.

Published: Anders B. Trolle & Eduardo S. Schwartz, 2009. "A General Stochastic Volatility Model for the Pricing of Interest Rate Derivatives," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 22(5), pages 2007-2057, May.

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