II.3.6 Data for fixed income volatility

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Nirali
Posts: 12
Joined: Sat Oct 04, 2008 2:24 pm

II.3.6 Data for fixed income volatility

Postby Nirali » Fri Jul 25, 2014 6:56 am

Hi Carol,

For calculating VaR using Cash Flow Maps (as per books 3 and 4), i need to estimate the volatility for the vertices.

I have 4 yield curves : YTM semi-annualised, YTM annualised, ZCYC semi-annualised and ZCYC annualised (yields for Govt Securities and Tbills).

The curve has tenors from 3 months to 30 years.

Data is also available for 2 years.

My questions are :
1) Which curve should i use for estimating volatility ? ZCYC semi-annualised ??

2) Is it ok to use EWMA for volatility estimation ?

3) Can i compute volatility and co-variance directly on the yields ? if no, how do i use the above yield curve/s for volatility estimation ?

Thanks & Regards,
Nirali Shah

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