Scheduled announcements and volatility patterns: The effects of monetary policy committee announcements on LIBOR and short sterling futures and options
✍ Scribed by Peng Sun; Charles Sutcliffe
- Publisher
- John Wiley and Sons
- Year
- 2003
- Tongue
- English
- Weight
- 171 KB
- Volume
- 23
- Category
- Article
- ISSN
- 0270-7314
No coin nor oath required. For personal study only.
✦ Synopsis
Abstract
Both the UK spot and futures markets in short‐term interest rates are found to react strongly to
surprises in the scheduled announcements of the repo rate and RPI. Therefore, these announcements should also
affect the market for options on short‐term interest rate futures. Because the repo rate and RPI
announcements are scheduled, the options market can predict the days on which announcement shocks may hit, and
build this information into its volatility expectations. It is argued that the volatility used in pricing
options should alter over time in a predictable nonlinear manner that varies with contract maturity and the
number of forthcoming announcements; but is independent of announcement content. The empirical results
support this hypothesis. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:773–797, 2003