Scheduled announcements and volatility patterns: The effects of monetary policy committee announcements on LIBOR and short sterling futures and options

Peng Sun and Charles Sutcliffe

Journal of Futures Markets, 2003, vol. 23, issue 8, 773-797

Abstract: Both the UK spot and futures markets in short‐term interest rates are found to react strongly to surprises in the scheduled announcements of the repo rate and RPI. Therefore, these announcements should also affect the market for options on short‐term interest rate futures. Because the repo rate and RPI announcements are scheduled, the options market can predict the days on which announcement shocks may hit, and build this information into its volatility expectations. It is argued that the volatility used in pricing options should alter over time in a predictable nonlinear manner that varies with contract maturity and the number of forthcoming announcements; but is independent of announcement content. The empirical results support this hypothesis. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:773–797, 2003

Date: 2003
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Working Paper: Scheduled Announcements and Volatility Patterns: The Effects of Monetary Policy Committee Announcements on LIBOR and Short Sterling Futures and Options (2001)
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