Implied volatility linkages among major European currencies |
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| Affiliation: | 1. University of Cyprus, University Avenue 1, 1678 Nicosia, Cyprus;2. Cyprus University of Technology, 30 Archbishop Kyprianou Str., 3036 Limassol, Cyprus;1. Center for Energy and Sustainable Development (CESD), Montpellier Business School, Montpellier, France;2. University of Navarra, School of Economics, Edificio Amigos, E-31080 Pamplona, Spain;3. Department of Economics, University of Pretoria, Pretoria, 0002, South Africa;4. College of Business Administration, University of Nebraska at Omaha, 6708 Pine Street, Omaha, NE 68182, USA;5. School of Business and Economics, Loughborough University, Leicestershire, LE11 3TU, UK |
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| Abstract: | ![]()
This paper examines linkages in expected future volatilities among major European currencies. For that purpose, volatility expectations implied by currency options on the euro, British pound, and Swiss franc quoted against the U.S. dollar are analysed. Vector autoregressive modelling is applied to ascertain the dynamics of the implied volatilities across currencies. The results show that the market expectations of future exchange rate volatilities are closely linked among major European currencies. Furthermore, it is found that the implied volatility of the euro significantly affects the volatility expectations of the British pound and the Swiss franc. |
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