跳至主要内容

Interest Rate Volatility: A Consol Rate Approach

Read  full  paper  at:
http://www.scirp.org/journal/PaperInformation.aspx?PaperID=54073#.VOBeJSzQrzE

Author(s) 
 
ABSTRACT
In this paper, we propose a new methodology to estimate the volatility of interest rates in the euro area money market. In particular, our approach aims at avoiding the limitations of market implied volatilities, i.e. the dependency on arbitrary choices in terms of maturity and frequencies and/or of other factors like credit and liquidity risks. The measure is constructed as the implied instantaneous volatility of a consol bond that would be priced on the EONIA swap curve over the sample period from 4 January 1999 to 21 November 2013. Our findings show that this measure tracks well the historical volatility since, by dividing the consol excess returns by our volatility measure. This removes nearly entirely excess of kurtosis and volatility clustering, bringing the excess returns close to an ordinary Gaussian white noise.
 
Cite this paper
Brousseau, V. and Durré, A. (2015) Interest Rate Volatility: A Consol Rate Approach. Journal of Mathematical Finance, 5, 58-72. doi: 10.4236/jmf.2015.51006.
 
References
[1]Brousseau, V. and Durré, A. (2013) Interest Rate Volatility: A consol Rate-Based Measure. ECB Working Paper Series 1505.
 
[2]Fisher, L. and Weil, R.L. (1971) Coping with the Risk of Interest-Rate. Journal of Business, 44, 408-431.
http://dx.doi.org/10.1086/295402
 
[3]Heath, D., Jarrow, R. and Morton, A. (1992) Bond Pricing and the Term Structure of Interest Rates: A New Methodology for Contingent Claims Valuation. Econometrica, 60, 77-105.
http://dx.doi.org/10.2307/2951677
 
[4]Duffie, D. and Kan, R. (1996) A Yield factor Model of Interest Rates. Mathematical Finance, 6, 379-406.
http://dx.doi.org/10.1111/j.1467-9965.1996.tb00123.x
 
[5]Vasicek, O. (1977) An Equilibrium Characterization of the Term Structure. Journal of Financial Economics, 5, 177-188.
http://dx.doi.org/10.1016/0304-405X(77)90016-2
 
[6]Cox, J., Ingersoll, J. and Ross, S. (1979) Duration and the Measurement of Basis Risk. Journal of Business, 52, 51-61.
http://dx.doi.org/10.1086/296033
 
[7]Brousseau, V. (2002) The Functional Form of Yield Curves. ECB Working Paper Series 148.
 
[8]Gourieroux, C. and Sufana, R. (2006) A Classification of Two-Fact or Affine Diffusion Term Structure Models. Journal of Financial Econometrics, 4, 31-52.
http://dx.doi.org/10.1093/jjfinec/nbj003
 
[9]Brousseau, V. and Durré, A. (2014) Sur une représentation paramétrique affine de la courbe des taux. Revue Bancaire et Financière, 4, 297-310.                                                   eww150215lx
标签：

评论

发表评论

此博客中的热门博文

Does Immigration Promote the Investment of the Monopolistic Firm?

In the present paper, we examine the effect of increasing uncertainty of immigrants’ growth on the optimal timing of investment of a firm that has a monopolistic power over the labor market. It is revealed that when the uncertainty of immigrants’ growth is more than a threshold level, increasing uncertainty of immigrants’ growth accelerates the optimal timing of firms’ investment and enhances the economic growth, even if the uncertainty of immigrants’ growth is formulated by the geometric Brownian motion, which is in sharp contrast to the standard result that an increase in the uncertainty postpones the optimal timing. With an increase in the immigrants over the past ten years, workforces in the host countries have been growing significantly to the extent that the immigrants represent 70% of the increase in the workforce in Europe, and 47% in the United States as OECD indicates. In the present paper, we attempted to investigate the effect of increased uncertainty caused by the growi...
发表评论
阅读全文

Education Policy Implementation: A Mechanism for Enhancing Primary Education Development in Zanzibar

Education is one of the fundamental rights of individuals; therefore, the government of a country needs to develop and strengthen educational policy and quality as well as to ensure that everyone has equal access to basic education. The improvement of access and quality of education in the world is becoming as an essential factor in development, whereas the basic education (primary school), is acknowledged as a foundation of the higher educational development for every country. To fulfill this goal, governments introduce several policies and procedures; however, it requires some reforms and participation from the politician, policymakers, and other stakeholders to re-examine educational policy so that it can lead to multiplication and betterment of the reforms. Educational reforms actually focus on accountability. A positive educational development and reform is very challenging and needs more effort and strategy on how to use and utilize the resources effectively as such it can achie...
发表评论
阅读全文