Year-end seasonality in one-month LIBOR derivatives
We examine the markets for one-month LIBOR futures contracts and options on those futures for a year-end price effect consistent with the previously identified year-end rate increase in one-month LIBOR. The cash market rate increase appears in forward rates and derivative prices, which allows the derivatives to properly hedge year-end interest rate risk. However, while the year-end effect appears in the derivative contract, these derivative contracts provide biased forecasts of both future interest rates and their volatility. The bias appears to be different at year's end for the LIBOR futures contract, but not for the options contract. The information in the derivatives almost always subsumes simple benchmark forecasts. ; Earlier title: Seasonality in one-month LIBOR derivatives
|Date of creation:||2005|
|Publication status:||Published in Journal of Derivatives, Spring 2006, 13(3), pp. 47-65|
|Contact details of provider:|| Postal: P.O. Box 442, St. Louis, MO 63166|
Web page: http://www.stlouisfed.org/
More information through EDIRC
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- James D. Hamilton & Oscar Jorda, 2002.
"A Model of the Federal Funds Rate Target,"
Journal of Political Economy,
University of Chicago Press, vol. 110(5), pages 1135-1167, October.
- James D. Hamilton & Oscar Jorda, "undated". "A model for the federal funds rate target," Department of Economics 99-07, California Davis - Department of Economics.
- James D. Hamilton & Oscar Jorda, 2000. "A Model for the Federal Funds Rate Target," NBER Working Papers 7847, National Bureau of Economic Research, Inc.
- Oscar Jorda & James D. Hamilton, 2003. "A model for the federal funds rate target," Working Papers 997, University of California, Davis, Department of Economics.
- Barone-Adesi, Giovanni & Whaley, Robert E, 1987. " Efficient Analytic Approximation of American Option Values," Journal of Finance, American Finance Association, vol. 42(2), pages 301-320, June.
- Allen, Linda & Saunders, Anthony, 1992. "Bank window dressing: Theory and evidence," Journal of Banking & Finance, Elsevier, vol. 16(3), pages 585-623, June.
- Canina, Linda & Figlewski, Stephen, 1993. "The Informational Content of Implied Volatility," Review of Financial Studies, Society for Financial Studies, vol. 6(3), pages 659-681.
- Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
- Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, vol. 55(3), pages 703-708, May.
- Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers 0055, National Bureau of Economic Research, Inc.
- Griffiths, Mark D & Winters, Drew B, 1996. "The Relation between the Federal Funds Cash and Futures Markets," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 19(3), pages 359-376, Fall.
- Lamoureux, Christopher G & Lastrapes, William D, 1993. "Forecasting Stock-Return Variance: Toward an Understanding of Stochastic Implied Volatilities," Review of Financial Studies, Society for Financial Studies, vol. 6(2), pages 293-326.
- Robert F. Engle & Joshua Rosenberg, 1966. "Testing the Volatility Term Structure Using Option Hedging Criteria," New York University, Leonard N. Stern School Finance Department Working Paper Seires 96-24, New York University, Leonard N. Stern School of Business-.
- Robert F. Engle & Joshua Rosenberg, 1998. "Testing the Volatility Term Structure using Option Hedging Criteria," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-031, New York University, Leonard N. Stern School of Business-.
- Jorion, Philippe, 1995. " Predicting Volatility in the Foreign Exchange Market," Journal of Finance, American Finance Association, vol. 50(2), pages 507-528, June.
- Latane, Henry A & Rendleman, Richard J, Jr, 1976. "Standard Deviations of Stock Price Ratios Implied in Option Prices," Journal of Finance, American Finance Association, vol. 31(2), pages 369-381, May.
- Jordan, Susan D. & Jordan, Bradford D., 1991. "Seasonality in Daily Bond Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 26(02), pages 269-285, June.
- Christopher J. Neely, 2004. "Implied volatility from options on gold futures: do statistical forecasts add value or simply paint the lilly?," Working Papers 2003-018, Federal Reserve Bank of St. Louis. Full references (including those not matched with items on IDEAS)