Predicting Interest Rate Volatility: Using Information on the Yield Curve

Hideyuki Takamizawa and 秀幸 髙見澤

No G-1-9, Working Paper Series from Hitotsubashi University Center for Financial Research

Abstract: This study examines whether information on the yield curve is useful for predicting volatility of the yield curve. The information is used within dynamic models by specifying the covariance matrix of changes in yield factors as nonlinear functions of the factors. Using such models, it is found that the information (1) is useful for predicting volatility of the slope factor, achieving the accuracy comparable to the GARCH model; (2) has incremental value for predicting volatility of the curvature factor when combined with a volatility-specific factor; (3) does not much improve prediction of volatility of the level factor once the volatility-specific factor is introduced.

Keywords: Yield curve; Volatility; Level-dependence; Approximation of conditional moments (search for similar items in EconPapers)
JEL-codes: C58 E43 G12 G17 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2015-05-08
Note: This version: May 8, 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/26943/070hcfrWP_1_009.pdf

Related works:
Journal Article: Predicting Interest Rate Volatility Using Information on the Yield Curve (2015)
Working Paper: Predicting Interest Rate Volatility: Using Information on the Yield Curve (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:hit:hcfrwp:g-1-9

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