A state‐price volatility index for the U.S. government bond market | Zendy

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A state‐price volatility index for the U.S. government bond market

Author(s) -

Pan Zheyao

Publication year - 2018

Publication title -

accounting and finance

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.645

H-Index - 49

eISSN - 1467-629X

pISSN - 0810-5391

DOI - 10.1111/acfi.12271

Subject(s) - volatility (finance) , economics , futures contract , fixed income , financial economics , econometrics , volatility swap , ewma chart , government bond , bond , implied volatility , treasury , forward volatility , finance , archaeology , process (computing) , control chart , computer science , history , operating system

Using the Arrow–Debreu state‐contingent pricing methodology, this paper derives a U.S. government bond market volatility index ( GBVX ) . I show that GBVX is an unbiased predictor for the next 30 day realised volatility of the Treasury note futures return. GBVX also subsumes the information of GARCH , EWMA and historical volatility measures. Furthermore, GBVX serves as an effective predictor for the future realised volatilities of a wide class of fixed income portfolios. The results suggest GBVX as a powerful instrument for volatility forecasting in the fixed income markets.

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