We develop a tractable and flexible stochastic volatility multi-factor model of the term structure of interest rates …-coupon bond options and dynamics of the forward rate curve, under both the actual and risk-neutral measure, in terms of a finite …

pricing" of American-type bond options when the underlying term structure of interest rates follows a Poisson-Gaussian process …) introducing a more generalized volatility specification than has been used so far, and (ii) inducting jumps, yet retaining lattice …

Mathematical models of bond pricing are used by both academics and Wall Street practitioners, with practitioners … factors, stochastic volatility, and/or non-normal interest rate distributions …

Most affine models of the term structure with stochastic volatility (SV) predict that the variance of the short rate is …;unspanned stochastic volatility (USV).quot; Of the models tested, only the A1(4) USV model is found to generate both realistic volatility … estimates and a good cross-sectional fit. Our findings suggests that interest rate volatility cannot be extracted from the cross …

-maturity default-free bonds. The volatility of the long end of the term structure and its relationship with monetary policy are …, specifically stochastic volatility models combined with Epstein-Zin recursive utility, can account for such patterns. We study the … historical bond data …

empirical fact that the term structure of interest rate volatility has a hump-shaped pattern on employment report days (but not … on other days). The model also produces patterns in bond risk premia that are consistent with the empirical finding that … much of the time-variation in excess bond returns accrues at times of important macroeconomic data releases …

time varying and strongly related to measures of bond-specific illiquidity as well as to macroeconomic measures of bond …