The Performance of Multi-Factor Term Structure Models for Pricing and Hedging Caps and Swaptions

By Joost Driessen, Pieter Klaassen, Bertrand Melenberg. Journal of Financial and Quantitative Analysis, 2003

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Term Structure Dynamics in Theory and Reality (2003, methodology): “Duffee (2001) explores various macroeconomic interpretations of the finding that the slope of the yield curve forecasts excess returns, the finding that underlies the need for richer risk premiums than Equation (22) in affine models.”
A Methodology for Assessing Model Risk and its Application to the Implied Volatility Function Model (2002, background): “Driessen, Klaassen, and Melenberg (2000) look at both caps and swap options and find that the difference between the use of oneand two-factor models for hedging disappears when the set of hedge instruments covers all maturities at which there is a payout.”
Extracting Probabilistic Information from the Prices of Interest Rate Options: Tests of Distributional Assumptions (2005, background): “The Weibull distribution belongs to the family of distributions known as ExtremeValue distributions.”