Forecasting Credit Spread Volatility: Evidence from the Japanese Eurobond Market

Brock Johnson () and Jonathan Batten

Asia-Pacific Financial Markets, 2003, vol. 10, issue 4, 335-357

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

Keywords: credit spreads; forecasting volatility; Yen Eurobonds (search for similar items in EconPapers)
Date: 2003
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DOI: 10.1007/s10690-005-4242-y

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