Forecasting Credit Spread Volatility: Evidence from the Japanese Eurobond Market |
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Authors: | Email author" target="_blank">Brock?N?JohnsonEmail author Jonathan?A?Batten |
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Institution: | (1) Group Treasury, National Australia Bank, Collins St, Melbourne, Australia;(2) Graduate School of Management, Macquarie University, CBD Campus Level 6, 51-57 Pitt St, Sydney, NSW 2000, Australia |
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Abstract: | Different approaches to forecasting the volatility associated with the credit spreads on Yen Eurobonds are investigated. The actual volatility, historical volatility and estimated conditional volatility on spreads derived from a regression-based model with a GARCH and ARMA specification are compared within an adaptation of Black’s (J. Finance, 31, 1976, 361–367) option-pricing model. Surprisingly, the regression forecast over a medium forecasting horizon suggests that historic volatility provides the better forecast. The implications of these results for volatility forecasting and credit spread modelling are also discussed.JEL Classification: C32; G15 |
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Keywords: | credit spreads forecasting volatility Yen Eurobonds |
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