Template-Type: ReDIF-Paper 1.0
Author-Name: Xiaoxi Liu
Author-X-Name-First: Xiaoxi
Author-X-Name-Last: Liu
Author-Name: Jinming Xie
Author-X-Name-First: Jinming
Author-X-Name-Last: Xie
Title: Forecasting swap rate volatility with information from swaptions
Abstract: We examine the predictability of the model-free implied volatility from swaptions on future realized volatility of the underlying swap rates. The model-free implied volatility demonstrates significant predictability on future realized volatility of swap rates along a wide cross-section of tenors. The predictive power of the model-free implied volatility is superior to the predictability of lagged realized volatility and GARCH-type conditional volatility. The superior predictive power of the model-free implied volatility also holds out of sample, in different market states and with longer forecasting horizons.
Creation-Date: 2023-01
File-URL: https://www.bis.org/publ/work1068.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1068.htm
File-Format: text/html
Number: 1068
Keywords: swaption, model-free implied volatility, predictive regression, interest swap rate
Classification-JEL: C23, G11, G12
Handle: RePEc:bis:biswps:1068