An earlier post, DNS/AFNS Yield Curve Modeling FAQs, ended with:
"What next? Job 1 is flexible incorporation of stochastic volatility, moving from \(A_0(N)\) to \(A_x(N)\) for \(x>0\), as bond yields are most definitely conditionally heteroskedastic. Doing so is important for everything from estimating time-varying risk premia to forming correctly-calibrated interval and density forecasts. Work along those lines is starting to appear. Christensen-Lopez-Rudebusch (2010), Creal-Wu (2013) and Mauabbi (2013) are good recent examples."
Good news. Creal-Wu (2013) is now Creal-Wu (2014), revised and extended to allow both spanned and unspanned stochastic volatility. Really nice stuff.
"What next? Job 1 is flexible incorporation of stochastic volatility, moving from \(A_0(N)\) to \(A_x(N)\) for \(x>0\), as bond yields are most definitely conditionally heteroskedastic. Doing so is important for everything from estimating time-varying risk premia to forming correctly-calibrated interval and density forecasts. Work along those lines is starting to appear. Christensen-Lopez-Rudebusch (2010), Creal-Wu (2013) and Mauabbi (2013) are good recent examples."
Good news. Creal-Wu (2013) is now Creal-Wu (2014), revised and extended to allow both spanned and unspanned stochastic volatility. Really nice stuff.
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