afterworkguinness
Active Member
Hi,
I'm having trouble understanding the arguments against time dependent volatility models to value and hedge fixed income instruments.
Tuckman says:
"The downward-sloping factor structure and term structure of volatility in mean reverting models capture the behavior of interest rate movements better than parallel shifts and a flat term structure of volatility."
Can you clarify this ? Is a flat term structure of volatility the same as constant volatility? Does mean reversion result in non-parallel shifts ?
Thanks
I'm having trouble understanding the arguments against time dependent volatility models to value and hedge fixed income instruments.
Tuckman says:
"The downward-sloping factor structure and term structure of volatility in mean reverting models capture the behavior of interest rate movements better than parallel shifts and a flat term structure of volatility."
Can you clarify this ? Is a flat term structure of volatility the same as constant volatility? Does mean reversion result in non-parallel shifts ?
Thanks