Interest Rate Caps “Smile” Too! But Can the LIBOR Market Models Capture the Smile?
利用3年利率上限期权价格数据，实证发现市场存在波动率微笑，开发含随机波动率和跳跃的多因子期限结构模型，发现负跳跃对捕捉微笑至关重要，且微笑信息对理解期限结构模型很重要。
ABSTRACT Using 3 years of interest rate caps price data, we provide a comprehensive documentation of volatility smiles in the caps market. To capture the volatility smiles, we develop a multifactor term structure model with stochastic volatility and jumps that yields a closed‐form formula for cap prices. We show that although a three‐factor stochastic volatility model can price at‐the‐money caps well, significant negative jumps in interest rates are needed to capture the smile. The volatility smile contains information that is not available using only at‐the‐money caps, and this information is important for understanding term structure models.