Do Bonds Span The Fixed Income Markets ? Theory And Evidence for Unspanned Stochastic Volatility  

Oleh:

Goldstein, Robert S. ; Collin-Dufresne, Pierre

Jenis: Article from Journal - ilmiah internasional
Dalam koleksi: The Journal of Finance (EBSCO) vol. 57 no. 4 (2002), page 1685-1762.
Topik: Stochastic; studies; regression analysis; bond markets; volatility; stochastic models; interest rate risk
Fulltext: p 1685.pdf (245.02KB)

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Perpustakaan Pusat (Semanggi) Nomor Panggil: JJ88.6 Non-tandon: 1 (dapat dipinjam: 0) Tandon: tidak ada

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Isi artikel

Most term structure models assume bond markets are complete, that is, that all fixed income derivatives can be perfectly replicated using solely bonds. However, we find that, in practice swap rates have limited explanatory power for returns on at the money straddles - porfolios mainly exposed to volatility risk. We term this empirical feature "unspanned stochastic volatility" (USV). While USV can be captured within an HJM framework, we demonstrate that bivariate models cannot exhibit USV. We determine necessary and sufficient conditions for invarite markov affine systems to exhibit USV. For such USV models, bonds alone may not be sufficient to identify all parameters. Rather derivatives are needed.

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