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The Multifactor Nature of the Volatility of the Eurodollar Futures Market

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Abstract

This paper seeks to estimate a multifactor volatility model so as to describe the dynamics of interest rate markets, using data from the highly liquid but short term futures markets. The difficult problem of estimating such multifactor models is resolved by using a genetic algorithm to carry out the optimization procedure. The ability to successfully estimate a multifactor volatility model also eliminates the need to include a jump component, the existence of which would create difficulties in the practical use of interest rate models, such as pricing options or producing forecasts.

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  • Carl Chiarella & Thuy-Duong To, 2005. "The Multifactor Nature of the Volatility of the Eurodollar Futures Market," Research Paper Series 150, Quantitative Finance Research Centre, University of Technology, Sydney.
    • Handle: RePEc:uts:rpaper:150
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    File URL: https://www.uts.edu.au/sites/default/files/qfr-archive-02/QFR-rp150.pdf
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    Cited by:

    1. J. Jimenez & R. Biscay & T. Ozaki, 2005. "Inference Methods for Discretely Observed Continuous-Time Stochastic Volatility Models: A Commented Overview," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 12(2), pages 109-141, June.

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    More about this item

    Keywords

    term structure; volatility; mutlifactor; jump; eurodollar futures; genetic algorithm;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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