The Multifactor Nature of the Volatility of the Eurodollar Futures Market

Quantitative Finance Research Centre Research Paper No. 150

15 Pages Posted: 2 May 2006

See all articles by Carl Chiarella

Carl Chiarella

University of Technology, Sydney - UTS Business School, Finance Discipline Group

Thuy Duong To

University of New South Wales, Sydney; Financial Research Network (FIRN)

Date Written: January 2005

Abstract

This paper seeks to estimate a multifactor volatility model so as to describe the dynamics of interest rate markets, using data from the highly liquid but short term futures markets. The difficult problem of estimating such multifactor models is resolved by using a genetic algorithm to carry out the optimization procedure. The ability to successfully estimate a multifactor volatility model also eliminates the need to include a jump component, the existence of which would create difficulties in the practical use of interest rate models, such as pricing options or producing forecasts.

Keywords: term structure, volatility, mutlifactor, jump, Eurodollar futures, genetic algorithm

JEL Classification: C51, C61, E43

Suggested Citation

Chiarella, Carl and To, Thuy Duong, The Multifactor Nature of the Volatility of the Eurodollar Futures Market (January 2005). Quantitative Finance Research Centre Research Paper No. 150. Available at SSRN: https://ssrn.com/abstract=893089 or http://dx.doi.org/10.2139/ssrn.893089

Carl Chiarella (Contact Author)

University of Technology, Sydney - UTS Business School, Finance Discipline Group ( email )

PO Box 123
Broadway, NSW 2007
Australia
+61 2 9514 7719 (Phone)
+61 2 9514 7711 (Fax)

HOME PAGE: http://www.business.uts.edu.au/finance/

Thuy Duong To

University of New South Wales, Sydney ( email )

School of Banking and Finance,
University of New South Wales
Sydney, 2052
Australia
61295855865 (Phone)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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