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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.