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Forecasting Credit Spread Volatility: Evidence from the Japanese Eurobond Market

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  • Brock Johnson

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  • Jonathan Batten

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Abstract

Different approaches to forecasting the volatility associated with the credit spreads on Yen Eurobonds are investigated. The actual volatility, historical volatility and estimated conditional volatility on spreads derived from a regression-based model with a GARCH and ARMA specification are compared within an adaptation of Black’s (J. Finance, 31, 1976, 361–367) option-pricing model. Surprisingly, the regression forecast over a medium forecasting horizon suggests that historic volatility provides the better forecast. The implications of these results for volatility forecasting and credit spread modelling are also discussed. Copyright Springer Science + Business Media, Inc. 2003

Suggested Citation

  • Brock Johnson & Jonathan Batten, 2003. "Forecasting Credit Spread Volatility: Evidence from the Japanese Eurobond Market," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 10(4), pages 335-357, December.
  • Handle: RePEc:kap:apfinm:v:10:y:2003:i:4:p:335-357
    DOI: 10.1007/s10690-005-4242-y
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    References listed on IDEAS

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