PT - JOURNAL ARTICLE
AU - Heidari, Massoud
AU - Wu, Liuren
TI - Are Interest Rate Derivatives Spanned by the Term Structure of Interest Rates?
DP - 2003 Jun 30
TA - The Journal of Fixed Income
PG - 75--86
VI - 13
IP - 1
4099 - http://jfi.iijournals.com/content/13/1/75.short
4100 - http://jfi.iijournals.com/content/13/1/75.full
AB - This is an investigation of whether the same finite-dimensional system spans both interest rates (the yield curve) and interest rate options (the implied volatility surface). The options market is found to exhibit factors seemingly independent of the underlying yield curve. While three common factors are adequate to capture the systematic movement of the yield curve, three additional factors are needed to capture the movement of the implied volatility surface. Simulation analysis confirms the robustness of these findings.