@article {Hattori67, author = {Takahiro Hattori}, title = {The Predictive Power of the Implied Volatility of Interest Rates: Evidence from USD, EUR, and JPY Swaption}, volume = {27}, number = {1}, pages = {67--76}, year = {2017}, doi = {10.3905/jfi.2017.27.1.067}, publisher = {Institutional Investor Journals Umbrella}, abstract = {This is the first article to analyze the predictability of implied volatility based on swaption for the major currencies U.S. dollar (USD), Euro (EUR), and Japanese yen (JPY). Managing interest rate risk is of huge importance for risk management in financial institutions, and swaption is an over-the-counter contract and well-used instrument that enables us to test whether the option contains the information required to predict future realized volatility. The result shows that implied volatility has greater power to predict future realized volatility than the GARCH prediction or HV (historical volatility) for the USD and EUR, which is consistent with the equity or futures options markets. However, the GARCH forecast and HV have stronger predictive power for JPY because of the lack of liquidity.TOPICS: Interest-rate and currency swaps, currency, developed}, issn = {1059-8596}, URL = {https://jfi.pm-research.com/content/27/1/67}, eprint = {https://jfi.pm-research.com/content/27/1/67.full.pdf}, journal = {The Journal of Fixed Income} }