On the determinants of the evolution of the volatility surface in the over-the-counter currency option market
Prof. Robert Durand
Dr Kurt Smith
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School of Economics and Finance
This dissertation presents an empirical analysis of the determinants of the evolution of the volatility surface in the over-the-counter currency option market. We show spot rate return, change in realised volatility, volatility of volatility, market sentiment and interest rate differential all have strong correlation with the variation of volatility surface. And the size and significance of these explanatory variables differs between currencies and different market.
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