This paper provides a brief overview of the stochastic modeling of variance swap curves. Focus is on affine factor models. We propose a novel drift parametrization which assures that the components of the state process can be matched with any pre-speci fied points on the variance swap curve....

We study American swaptions in the linear-rational (LR) term structure model introduced. The American swaption pricing problem boils down to an optimal stopping problem that is analytically tractable. It reduces to a free-boundary problem that we tackle by the local time-space calculus. We...

We introduce the class of linear-rational term structure models in which the state price density is modeled such that bond prices become linear-rational functions of the factors. This class is highly tractable with several distinct advantages: i) ensures nonnegative interest rates, ii) easily...

We use the term structure of spreads between rates on interest rate swaps indexed to LIBOR and overnight indexed swaps to infer a term structure of interbank risk. Using a dynamic term structure model, we decompose the term structure of interbank risk into default and non-default components. We...

We introduce a novel class of term structure models for variance swaps. The multivariate state process is characterized by a quadratic diffusion function. The variance swap curve is quadratic in the state variable and available in closed form, greatly facilitating empirical analysis. Various...