A robust stochastic volatility model for interest rates
A swaption pricing model based on a single-factor Cheyette model is shown to fit accurately
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Artur Sepp and Parviz Rakhmonov introduce the lognormal stochastic volatility model for the dynamics of interest rates in the single-factor Cheyette model. They show that, unlike models that mix local rate dynamics with zero-correlated volatility dynamics, their model is robust, and they derive closed-form approximate and very accurate solutions for valuation of
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