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| Author: | Amin, K. I. Ng, V. K. |
| Title: | Inferring future volatility from the information in implied volatility in Eurodollar options: A new approach |
| Journal: | Review of Financial Studies
1997 : SUMMER, VOL. 10:2, p. 333-367 |
| Index terms: | VOLATILITY OPTIONS MARKETS |
| Language: | eng |
| Abstract: | This paper finds that Heath-Jarrow-Morton (HJM) implied volatility from Eurodollar futures options explains most of the realized interest rate volatility. It was found that GARCH persistence terms and GJR asymmetric shock terms are highly important. It was found that the Vasicek (1977) and the linear proportional volatility models perform better than the other implied volatility models. It was found that HJM models fail to capture the interaction between rate shocks and rate levels in determining realized volatility. Also the predictive ability of implied volatility was examined by using lagged implied volatility in the tests. Finally it was found that implied volatility has significant explanatory power even over monthly horizons. |
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