The Term Structure Of Short Term Interest Rate Futures Volatility
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| Author | : Pedro Gurrola-Perez |
| Publisher | : |
| Total Pages | : 28 |
| Release | : 2018 |
| Genre | : |
| ISBN | : |
The maturity effect states that the volatility of futures prices should increase as the contract approaches expiration. Numerous studies have investigated this effect for different asset classes. However, the presence of a maturity effect in short term interest rate (STIR) futures has usually only been studied considering these within a wider set of financial futures, without further consideration of their special features. Our study looks at the presence of maturity effects in STIR futures by analyzing the term structure of the volatility of the most worldwide traded contracts, taking into consideration their specific characteristics. We provide empirical evidence on the positive relation between volatility and time to maturity and show how these results relate to models of the term structure of interest rates.
| Author | : Richard C. Stapleton |
| Publisher | : |
| Total Pages | : 51 |
| Release | : 2008 |
| Genre | : |
| ISBN | : |
We derive general properties of two-factor models of the term structure of interest rates and, in particular, the process for futures prices and rates. Then, as a special case, we derive a no-arbitrage model of the term structure in which any two futures rates act as factors. The term structure shifts and tilts as the factor rates vary. The cross-sectional properties of the model derive from the solution of a two-dimensional autoregressive process for the short-term rate, which exhibits both mean reversion and a lagged persistence parameter. We show that the correlation of the futures rates is restricted by the no-arbitrage conditions of the model. In addition, we investigate the determinants of the volatility of the futures rates of various maturities. These are shown to be related to the volatilities of the short rate, the volatility of the second factor, the degree of mean reversion and the persistence of the second factor shock. We obtain specific results for futures rates in the case where the logarithm of the short-term rate [e.g., the London Inter-Bank Offer Rate (Libor)] follows a two-dimensional process. Our results lead to empirical hypotheses that are testable using data from the liquid market for Eurocurrency interest rate futures contracts.
| Author | : Clark Leavitt |
| Publisher | : |
| Total Pages | : 418 |
| Release | : 1987 |
| Genre | : Accounting fraud |
| ISBN | : |
| Author | : Richard C. Stapleton |
| Publisher | : |
| Total Pages | : 65 |
| Release | : 2000 |
| Genre | : Interest rate futures |
| ISBN | : |
We derive general properties of two-factor models of the term structure of interest rates and, in particular, the process for futures prices and rates. Then, as a special case, we derive a no-arbitrage model of the term structure in which any two futures rates act as factors. In this model, the term structure shifts and tilts as the factor rates vary. The cross-sectional properties of the model derive from the solution of a two-dimensional, autoregressive process for the short-term rate, which exhibits both mean-reversion and a lagged persistence parameter. We show that the correlation of the futures rates is restricted by the no-arbitrage conditions of the model. In addition, we investigate the determinants of the volatilities and the correlations of the futures rates of various maturities. These are shown to be related to the volatility of the short rate, the volatility of the second factor, the degree of mean-reversion and the persistence of the second factor shock. We also discuss the extension of our model to three or more factors. We obtain specific results for futures rates in the case where the logarithm of the short-term rate [e.g., the London Inter-Bank Offer Rate LIBOR follows a two-dimensional process. Our results lead to empirical hypotheses that are testable using data from the liquid market for Eurocurrency interest rate futures contracts.
| Author | : Mr.Vadim Khramov |
| Publisher | : International Monetary Fund |
| Total Pages | : 27 |
| Release | : 2013-10-17 |
| Genre | : Business & Economics |
| ISBN | : 1475591225 |
This paper sheds light on a narrow but crucial question in finance: What should be the parameters of a model of the short-term real interest rate? Although models for the nominal interest rate are well studied and estimated, dynamics of the real interest rate are rarely explored. Simple ad hoc processes for the short-term real interest rate are usually assumed as building blocks for more sophisticated models. In this paper, parameters of the real interest rate model are estimated in the broad class of single-factor interest rate diffusion processes on U.S. monthly data. It is shown that the elasticity of interest rate volatility—the relationship between the volatility of changes in the interest rate and its level—plays a crucial role in explaining real interest rate dynamics. The empirical estimates of the elasticity of the real interest rate volatility are found to be about 0.5, much lower than that of the nominal interest rate. These estimates show that the square root process, as in the Cox-Ingersoll-Ross model, provides a good characterization of the short-term real interest rate process.
| Author | : María Cruz Manzano |
| Publisher | : |
| Total Pages | : 58 |
| Release | : 1998 |
| Genre | : Interest rates |
| ISBN | : |
| Author | : Rajna Gibson |
| Publisher | : Now Publishers Inc |
| Total Pages | : 171 |
| Release | : 2010 |
| Genre | : Business & Economics |
| ISBN | : 1601983727 |
Modeling the Term Structure of Interest Rates provides a comprehensive review of the continuous-time modeling techniques of the term structure applicable to value and hedge default-free bonds and other interest rate derivatives.
| Author | : Narasimhan Jegadeesh |
| Publisher | : |
| Total Pages | : |
| Release | : 2000 |
| Genre | : |
| ISBN | : |
This paper considers an equilibrium model of the term structure that is determined by two stochastic factors: a short term interest rate and a target level to which the short rate is expected to revert. A Kalman filter technique that uses a time series, cross-section of Eurodollar futures prices is developed to estimate the parameters of the model. The term structures of spot LIBOR and Eurodollar futures volatility are compared to that predicted by the model. The empirical results indicate that the two factor specification represents a significant improvement over its one factor version.
| Author | : Frank J. Fabozzi |
| Publisher | : John Wiley & Sons |
| Total Pages | : 530 |
| Release | : 2002-11-29 |
| Genre | : Business & Economics |
| ISBN | : 047144698X |
This ultimate guide contains an excellent blend of theory and practice This comprehensive guide covers various aspects of model building for fixed income securities and derivatives. Filled with expert advice, valuable insights, and advanced modeling techniques, Interest Rate, Term Structure, and Valuation Modeling is a book that all institutional investors, portfolio managers, and risk professionals should have. John Wiley & Sons, Inc. is proud to be the publisher of the esteemed Frank J. Fabozzi Series. Comprising nearly 100 titles-which include numerous bestsellers—The Frank J. Fabozzi Series is a key resource for finance professionals and academics, strategists and students, and investors. The series is overseen by its eponymous editor, whose expert instruction and presentation of new ideas have been at the forefront of financial publishing for over twenty years. His successful career has provided him with the knowledge, insight, and advice that has led to this comprehensive series. Frank J. Fabozzi, PhD, CFA, CPA, is Editor of the Journal of Portfolio Management, which is read by thousands of institutional investors, as well as editor or author of over 100 books on finance for the professional and academic markets. Currently, Dr. Fabozzi is an adjunct Professor of Finance at Yale University's School of Management and on the board of directors of the Guardian Life family of funds and the Black Rock complex of funds.
| Author | : |
| Publisher | : Lulu.com |
| Total Pages | : 294 |
| Release | : 2004 |
| Genre | : Bank capital |
| ISBN | : 9291316695 |
