Swiss Franc (CHF) LIBOR: technical predictability overview - Correlations between CHF LIBOR maturities, s/n-o/n and longer terms

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Written by Forex Automaton   
Monday, 10 November 2008 15:45
Article Index
Swiss Franc (CHF) LIBOR: technical predictability overview
CHF LIBOR volatility
CHF LIBOR autocorrelations
Correlations between CHF LIBOR maturities, s/n-o/n and longer terms
Correlations between CHF LIBOR maturities, 1-week and longer terms
Correlations between CHF LIBOR maturities, 1-month and longer terms
Correlations between CHF LIBOR maturities, 3-month and longer terms
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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. These help answer the question to what extent one LIBOR term can be predicted on the basis of any others. The zero-lag correlation magnitudes between different LIBOR terms are presented as Pearson correlation coefficients in the table. The figures focus on the correlation shapes at the time lags surrounding the zero-lag peak.

Table 1: Pearson correlation coefficients between CHF LIBOR in 2002-2008, various maturities

duration s/n-o/n1-week1-month3-month6-month 12-month
s/n-o/n 1 0.73 0.51 0.32 0.25 0.17
1-week  1 0.62 0.46 0.35 0.28
1-month   1 0.77 0.66 0.51
3-month    1 0.85 0.66
6-month     1 0.85
12-month      1

The correlation of different maturity terms (which is roughly the square root of the zero time-lag peak amplitude) is seen to go down as the difference in maturities grows; similar maturities are correlated tighter. Overall, the evolution with LIBOR maturity term is the same as described for autocorrelations.

Correlations between s/n-o/n and longer term LIBOR rates

Correlation between logarithmic returns in  s/n-o/n and 1-week CHF LIBOR rates as a function of time lag, days Correlation between logarithmic returns in  s/n-o/n and 1-month CHF LIBOR rates as a function of time lag, days Correlation between logarithmic returns in  s/n-o/n and 3-month CHF LIBOR rates as a function of time lag, days Correlation between logarithmic returns in  s/n-o/n and 6-month CHF LIBOR rates as a function of time lag, days Correlation between logarithmic returns in  s/n-o/n and 12-month CHF LIBOR rates as a function of time lag, days

Fig.4: Correlation between logarithmic returns in s/n-o/n and, top to bottom: 1-week, 1-month, 3-month, 6-month and 12-month CHF 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 uncorrelated time series.



Last Updated ( Monday, 27 December 2010 17:08 )