dynamics. We show that this is a tractable term structure model and provides closed-form solutions to bond prices, yields, bond … option prices, and the term structure of forward rate volatility. We demonstrate the capabilities of our model by calibrating … it to a panel of spot rates and the empirical volatility of forward rates simultaneously, making the model consistent …

This paper provides an examination of term structure models in the Australian bond market. Specifically, we examine the … underprice a bond at the short and medium ends of the term structure and generally overprice bonds at the long end. Further, the … level of mispricing is related to time-to-maturity, coupon payments and interest rate volatility. The results have …

a proportionality constant which is comparable to the spot rate volatility. This suggests that forward rate market … volatility `hump' around one year found by several authors (and which we confirm). Finally, the number of independent components …

the drift and volatility parameters of the short rate in terms of initial yield and volatility curves. Explicit formulae … are derived for bond, Arrow-Debreu, and European and American bond options. …