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Volatility Term Structure Modeling Using Nelson-Siegel Model

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  • Barbora Malinska

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic)

Abstract

Understanding of volatility term structure is highly relevant both for market agents and policymakers. As traditional methodologies often bring results contradicting situation on the markets, we revisit volatility term structure modeling in univariate case. In this paper we benefi t from extensive high-frequency dataset of US Treasury futures prices allowing us to empirically inspect the behaviour of the respective realized volatility term structure. We believe that the discovered properties justify the application of multi-factor modeling techniques primarily developed for yield curves. Finally we develop the comprehensive methodology fitting empirical data efficiently by term structure decomposition using Nelson-Siegel class of models.

Suggested Citation

  • Barbora Malinska, 2018. "Volatility Term Structure Modeling Using Nelson-Siegel Model," Working Papers IES 2018/17, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Aug 2018.
    • Handle: RePEc:fau:wpaper:wp2018_17
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    File URL: http://ies.fsv.cuni.cz/sci/publication/show/id/5871/lang/cs
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    Keywords

    Realized volatility; Term structure; Dynamic Nelson-Siegel model; High-frequency data;
    All these keywords.

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