Abstract

This paper analyses the US volatility term structure and identified the common factors. This research also examines different estimates depending on the selected dataset with a specific model used to estimate the term structure of interest rates. Our analysis finds that three principal components approximately explained 96% of the changes in volatility term structure. These components are related to the level, slope and curvature of the term structure of volatilities. Finally, these principal components are quite similar in mean among our datasets. On the other hand, our research finds significant differences in median and variance between some datasets mainly with historical volatility in case of the first and third principal component.

Key words: Volatility term structure, term structure of interest rates, egarch, principal components.