01906cam a22002657 4500001000700000003000500007005001700012008004100029100002200070245016800092260006600260490004200326500001500368520066900383530006101052538007201113538003601185690010901221690009101330700002501421710004201446830007701488856003801565856003701603w12337NBER20161204035041.0161204s2006 mau||||fs|||| 000 0 eng d1 aTrolle, Anders B.12aA General Stochastic Volatility Model for the Pricing and Forecasting of Interest Rate Derivativesh[electronic resource] /cAnders B. Trolle, Eduardo S. Schwartz. aCambridge, Mass.bNational Bureau of Economic Researchc2006.1 aNBER working paper seriesvno. w12337 aJune 2006.3 aWe 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. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web. 7aE43 - Interest Rates: Determination, Term Structure, and Effects 2Journal of Economic Literature class. 7aG13 - Contingent Pricing • Futures Pricing2Journal of Economic Literature class.1 aSchwartz, Eduardo S.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w12337.4 uhttp://www.nber.org/papers/w1233741uhttp://dx.doi.org/10.3386/w12337