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.
|Number of pages||23|
|Journal||Asia-Pacific Financial Markets|
|Publication status||Published - Aug 2005|
- Credit spreads
- Forecasting volatility
- Yen Eurobonds