A generalised arbitrage-free Nelson-Siegel model: The impact of unspanned stochastic volatility

► The constant volatility assumption of the classical AFNS model is released. ► The unspanned stochastic volatility is incorporated into our framework. ► The empirical model benefits from the theoretical background of HJM framework. ► Markovian representation is applied to the arbitrage-free contribution term. ► The market price of risk is demonstrated in the USV-AFNS model.