Can Unspanned Stochastic Volatility Models Explain the Cross Section of Bond Volatilities?
研究了在固定收益市场中，非跨期波动率（即无法用债券对冲的波动率风险）是否能在更一般的仿射期限结构模型中解释债券波动率的横截面特征，发现早期模型难以匹配，但更一般的模型可以。
In fixed income markets, volatility is unspanned if volatility risk cannot be hedged with bonds. We first show that all affine term structure models with state space [Formula: see text] can be drift normalized and show when the standard variance normalization can be obtained. Using this normalization, we find conditions for a wide class of affine term structure models to exhibit unspanned stochastic volatility (USV). We show that the USV conditions restrict both the mean reversions of risk factors and the cross section of conditional yield volatilities. The restrictions imply that previously studied affine USV models are unlikely to be able to generate the observed cross section of yield volatilities. However, more general USV models can match the cross section of bond volatilities. This paper was accepted by Wei Xiong, finance.