Are Interest Rate Derivatives Spanned by the Term Structure of Interest Rates?

We investigate whether the same finite dimensional dynamic system spans both interest rates (the yield curve) and interest rate options (the implied volatility surface). We find that the options market exhibits factors independent of the underlying yield curve. While three common factors are adequate to capture the systematic movement of the yield curve, we need three additional factors to capture the movement of the implied volatility surface.

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Year of publication:	2002-08-30
Authors:	Heidari, Massoud ; WU, Liuren
Institutions:	EconWPA
Subject:	Factors \| principal component \| LIBOR \| swaps \| swaptions \| yield curve \| implied volatility surface

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Extent:	application/pdf
Series:	Finance.
Type of publication:	Book / Working Paper
Notes:	Type of Document - pdf; prepared on MikTex; to print on postscript; pages: 48 ; figures: included. produced via dvipdfm 48 pages
Classification:	E43 - Determination of Interest Rates; Term Structure Interest Rates ; G12 - Asset Pricing
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005134877