Fixed income volatility and equity
volatility evolve heterogeneously over time, co-moving disproportionately
during periods of global imbalances and each reacting to events of different
nature. While the methodology for options-based "model-free" pricing
of equity volatility has been known for some time, little is known about
analogous methodologies for pricing various fixed income volatilities.
This book fills this gap and provides a
unified evaluation framework of fixed income volatility while dealing with
disparate markets such as interest-rate swaps, government bonds, time-deposits
and credit. It develops model-free, forward looking indexes of fixed-income
volatility that match different quoting conventions across various markets, and
uncovers subtle yet important pitfalls arising from naïve superimpositions of
the standard equity volatility methodology when pricing various fixed income
volatilities.
The ultimate goal of the authors´ efforts
is to make interest rate volatility standardization a valuable channel of
information, helping design signal generation and trading strategies, or, to
mention another example, informing policy makers about how decisions and
communication affect ongoing developments in fixed income volatility. More
generally, this work will help inform the public about how uncertainty is
perceived by key players in one of the most important segments in the whole
capital market.
