Unspanned stochastic volatility in the multifactor CIR model
研究了多因子Cox-Ingersoll-Ross模型能否产生未覆盖的随机波动率（USV），给出了充要条件并构造了能产生USV的三因子模型，回答了此前悬而未决的问题。
Abstract Empirical evidence suggests that fixed‐income markets exhibit unspanned stochastic volatility (USV), that is, that one cannot fully hedge volatility risk solely using a portfolio of bonds. While Collin‐Dufresne and Goldstein (2002, Journal of Finance , 57 , 1685–1730) showed that no two‐factor Cox–Ingersoll–Ross (CIR) model can exhibit USV, it has been unknown to date whether CIR models with more than two factors can exhibit USV or not. We formally review USV and relate it to bond market incompleteness. We provide necessary and sufficient conditions for a multifactor CIR model to exhibit USV. We then construct a class of three‐factor CIR models that exhibit USV. This answers in the affirmative the above previously open question. We also show that multifactor CIR models with diagonal drift matrix cannot exhibit USV.