The Nature of the Dependence of Magnitude of Rate Moves on the Rates Levels: A Universal Relationship

34 Pages Posted: 17 Jun 2015

See all articles by Nick Guillaume

Nick Guillaume

University of Oxford

Riccardo Rebonato

University of Oxford - Mathematical Institute

Andrei Pogudin

University of Oxford

Date Written: 2010

Abstract

We look at the dependence of the magnitude of rate moves on the level of rates, and we find a universal relationship that holds across currencies and over a very extended period of time (almost 50 years). For the very low level of rates, we find a proportional behaviour; for rates of an intermediate level we find that the magnitude of moves becomes independent of the level. The linear dependence resumes, however, for very high rates. We find the results to be very robust across currencies, tenors and time periods. Even the data we have collected for the UK Consol yields going back to the XIX century conforms closely to the same pattern. We discuss the importance of these findings for several theoretical and practical applications.

Keywords: interest rates, volatility

Suggested Citation

Guillaume, Nick and Rebonato, Riccardo and Pogudin, Andrei, The Nature of the Dependence of Magnitude of Rate Moves on the Rates Levels: A Universal Relationship (2010). Available at SSRN: https://ssrn.com/abstract=2618613 or http://dx.doi.org/10.2139/ssrn.2618613

Nick Guillaume

University of Oxford

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

Riccardo Rebonato (Contact Author)

University of Oxford - Mathematical Institute ( email )

United Kingdom

Andrei Pogudin

University of Oxford

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

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