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Scheduled announcements and volatility patterns: The effects of monetary policy committee announcements on LIBOR and short sterling futures and options
Author(s) -
Sun Peng,
Sutcliffe Charles
Publication year - 2003
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.10083
Subject(s) - futures contract , volatility (finance) , libor , economics , interest rate , futures market , monetary economics , financial economics , implied volatility
Both the UK spot and futures markets in short‐term interest rates are found to react strongly tosurprises in the scheduled announcements of the repo rate and RPI. Therefore, these announcements should alsoaffect the market for options on short‐term interest rate futures. Because the repo rate and RPIannouncements are scheduled, the options market can predict the days on which announcement shocks may hit, andbuild this information into its volatility expectations. It is argued that the volatility used in pricingoptions should alter over time in a predictable nonlinear manner that varies with contract maturity and thenumber of forthcoming announcements; but is independent of announcement content. The empirical resultssupport this hypothesis. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:773–797, 2003