The Rise and Fall of US Dollar Interest Rate Volatility: Evidence from Swaptions

12 Pages Posted: 27 May 2012 Last revised: 29 Sep 2013

See all articles by Bank for International Settlements

Bank for International Settlements

Bank for International Settlements (BIS)

Fabio Fornari

European Central Bank (ECB)

Date Written: September 1, 2005

Abstract

Interest rate volatility, as implied by swaptions prices, rose in all major economic areas between 2001 and early 2004. The increase was particularly sharp for US rates and was more sizeable for short-term rates and swaptions with short expiration. Since the spring of 2004, US dollar volatilities have declined to the values recorded for euro rates and their term structure has flattened. The rise and fall of US dollar implied volatility reflected changes both in expectations of realized volatility and in the compensation for volatility risk.

JEL Classification: G120, G130, G140

Suggested Citation

Settlements, Bank for International and Fornari, Fabio, The Rise and Fall of US Dollar Interest Rate Volatility: Evidence from Swaptions (September 1, 2005). BIS Quarterly Review, September 2005, Available at SSRN: https://ssrn.com/abstract=1884818

Bank for International Settlements (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4051
Switzerland

Fabio Fornari

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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