IDEAS home Printed from https://ideas.repec.org/a/wly/jfutmk/v29y2009i7p653-683.html
   My bibliography  Save this article

International evidence on alternative models of the term structure of volatilities

Author

Listed:
  • Antonio Díaz
  • Vicente Meneu
  • Eliseo Navarro

Abstract

The term structure of instantaneous volatilities (TSV) of forward rates for different monetary areas (euro, U.S. dollar and British pound) is examined using daily data from at‐the‐money cap markets. During the sample period (two and a half years), the TSV experienced severe changes both in level and shape. Two new functional forms of the instantaneous volatility of forward rates are proposed and tested within the LIBOR Market Model framework. Two other alternatives are calibrated and used as benchmarks to test the accuracy of the new models. The two new models provide more flexibility to adequately calibrate the observed cap prices, although this improved accuracy in replicating cap prices produces some instability in parameter estimates. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 29:653–683, 2009

Suggested Citation

  • Antonio Díaz & Vicente Meneu & Eliseo Navarro, 2009. "International evidence on alternative models of the term structure of volatilities," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 29(7), pages 653-683, July.
    • Handle: RePEc:wly:jfutmk:v:29:y:2009:i:7:p:653-683
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/
    Download Restriction: no
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:jfutmk:v:29:y:2009:i:7:p:653-683. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.interscience.wiley.com/jpages/0270-7314/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.