RT Journal Article
SR Electronic
T1 An Empirical Analysis of the Common Factors Governing U.S. Dollar-LIBOR Implied Volatility Movements
JF The Journal of Fixed Income
FD Institutional Investor Journals
SP 61
OP 68
DO 10.3905/jfi.1999.319220
VO 9
IS 3
A1 Pavan Wadhwa
YR 1999
UL https://pm-research.com/content/9/3/61.abstract
AB Common factors governing movements in the U.S. dollar yield curve have been examined extensively in the literature. The factors that drive volatility in the U.S. dollar-LIBOR market have not been addressed adequately, presumably because there is no easy access to high-quality volatility data in these markets. This article attempts to identify various factors that drive basis point volatility in the U.S. dollar-LIBOR caplet and swaption markets. Four of the most important volatility factors explain between 75% and 98% of the in-sample variance, and between 52% and 89% of the out-of-sample variance observed in the volatility matrix.