US Dollar (USD) LIBOR rates: technical predictability overview - LIBOR cross-correlations

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Written by Forex Automaton   
Wednesday, 01 October 2008 10:42
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US Dollar (USD) LIBOR rates: technical predictability overview
LIBOR volatilities
LIBOR autocorrelations
LIBOR cross-correlations
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Cross-correlations of LIBOR terms

Next, I am going to look at correlation between LIBOR rates of different maturities for various time lags.

Correlation between logarithmic returns in  s/n-o/n and 1-week USD LIBOR rates as a function of time lag, days Correlation between logarithmic returns in  s/n-o/n and 1-month USD LIBOR rates as a function of time lag, days Correlation between logarithmic returns in  s/n-o/n and 3-month USD LIBOR rates as a function of time lag, days Correlation between logarithmic returns in  s/n-o/n and 12-month USD LIBOR rates as a function of time lag, days

Fig.5: Correlation between logarithmic returns in s/n-o/n and, top to bottom: 1-week, 1-month, 3-month and 12-month USD LIBOR rates as a function of time lag, days, shown against the backdrop of statistical noise (red). The noise is obtained from martingale simulations based on the historical LIBOR volatilities for the period under study. The noise is presented as mean plus-minus 1 RMS, where RMS characterizes the distribution of the correlation value obtained for each particular bin by analyzing 20 independent simulated pairs of uncorrelated time series.

Correlation between logarithmic returns in  1-week and 1-month USD LIBOR rates as a function of time lag, days Correlation between logarithmic returns in  1-week and 3-month USD LIBOR rates as a function of time lag, days Correlation between logarithmic returns in  1-week and 12-month USD LIBOR rates as a function of time lag, days

Fig.6: Correlation between logarithmic returns in 1-week and, top to bottom: 1-month, 3-month and 12-month USD LIBOR rates as a function of time lag, days, shown against the backdrop of statistical noise (red). The noise is obtained from martingale simulations based on the historical LIBOR volatilities for the period under study. The noise is presented as mean plus-minus 1 RMS, where RMS characterizes the distribution of the correlation value obtained for each particular bin by analyzing 20 independent simulated pairs of uncorrelated time series.

Correlation between logarithmic returns in  1-month and 3-month USD LIBOR rates as a function of time lag, days Correlation between logarithmic returns in  1-month and 12-month USD LIBOR rates as a function of time lag, days

Fig.7: Correlation between logarithmic returns in 1-month and, top to bottom: 3-month and 12-month USD LIBOR rates as a function of time lag, days, shown against the backdrop of statistical noise (red). The noise is obtained from martingale simulations based on the historical LIBOR volatilities for the period under study. The noise is presented as mean plus-minus 1 RMS, where RMS characterizes the distribution of the correlation value obtained for each particular bin by analyzing 20 independent simulated pairs of uncorrelated time series.

Naturally, individual LIBOR maturities are generally positively correlated with one another. Speaking of forecasting, more often than not we see more positive correlation in the positive range of time lag. All correlated pairs are ordered so that shorter term is first, longer term second. The time lag being

t1-t2,

the conclusion is that often, shorter term follows and longer term leads. 12-month term is seen to lead 1-week and 1-month; 3-month term is seen to lead s/n-o/n; so is 1-month.

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Last Updated ( Monday, 04 January 2010 12:29 )