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This study investigates the yield and price volatility dynamics of synthetic government bonds in the Swedish (SEK) market using bootstrapped zero-coupon yield curves and established volatility models. Focusing on 2-year, 5-year, and 10-year synthetic bonds (SEGVB 2Y, 5Y, and 10Y), a one-year daily dataset (April 2024 to April 2025) was analyzed. A 1% yearly coupon interest rate was chosen. From this, the zero-coupon values of the bonds were extracted by stripping the coupons using the yield curves.

Price volatility was assessed using both log-returns and simple returns to ensure robustness in the analysis. The results revealed that shorter-maturity bonds tend to have more stable prices, whereas longer-maturity bonds exhibit greater price fluctuations. Interestingly, when looking at yield volatility, the trend reverses: shorter-term bonds display more pronounced yield variability compared to their longer-term counterparts. This inverse relationship highlights how bond duration affects the sensitivity of prices and yields to changes in market conditions.

The study also evaluated the Black-76, Bachelier, Hull-White, and SABR models. Among these, the Hull-White model was found to be the most effective in modeling bond price behavior because it incorporates mean reversion and better captures the dynamics of the term structure of interest rates, particularly for long-term bonds. These findings enhance the accuracy of risk modeling, stress testing, and pricing strategies in synthetic bond markets and offer valuable insights for institutional investors and financial regulators.