The model here is affine two-factor model for interest rates.
Let $p = p(r, \sigma)$ denote bond prices which take the usual exponential form.
Let $r$ have some $Q$ dynamics, and let $\sigma$ be the stochastic (!) volatility.
- Are there known conditions one can impose on the dynamics such that $p$ does not depend on $\sigma$?
- Given those conditions, would $\sigma$ still make have its say in the determination of option prices (e.g., a call), and if so, why?
For the first, I am thinking something there may be some particular unspanned stochastic volatility model? For the second, I am not sure.
