The Rise and Fall of US Dollar Interest Rate Volatility: Evidence from Swaptions
12 Pages Posted: 27 May 2012 Last revised: 29 Sep 2013
Date Written: September 1, 2005
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: Suggested Citation