Hedging in the Possible Presence of Unspanned Stochastic Volatility: Evidence from Swaption Markets
研究高阶多因子模型能否仅用LIBOR债券解释和对冲互换期权，发现互换期权甚至跨式组合可被良好对冲，且LIBOR市场外因素影响很小，表明互换期权市场与LIBOR互换市场高度整合。
Abstract This paper examines whether higher order multifactor models, with state variables linked solely to underlying LIBOR‐swap rates, are by themselves capable of explaining and hedging interest rate derivatives, or whether models explicitly exhibiting features such as unspanned stochastic volatility are necessary. Our research shows that swaptions and even swaption straddles can be well hedged with LIBOR bonds alone. We examine the potential benefits of looking outside the LIBOR market for factors that might impact swaption prices without impacting swap rates, and find them to be minor, indicating that the swaption market is well integrated with the LIBOR‐swap market.