An Empirical Analysis of the Swaption Cube
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This paper subsumes parts of the paper “The price of interest rate variance risk and optimal investments in interest rate derivatives” by the first author. We are grateful to Michael Brennan for extensive discussions, Peter Honoré and Kasper Lorenzen for valuable insights into the swaption market, and Pierre Collin-Dufresne, Peter Feldhutter, Damir Filipovic, Eric Ghysels, Julien Hugonier, Markus Leippold, Loriano Mancini, Pedro Santa-Clara, Olivier Scalliet, and seminar participants at the 2010 FINRISK meeting and University of Zurich for comments. Trolle gratefully acknowledges research support from NCCR FINRISK of the Swiss National Science Foundation. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.