Sterling’s implied volatilities rising? - BBH

By FXstreet.com | July 29, 2014 AAA

FXStreet (Guatemala) - Marc Chandler, Global Head of Currency Strategy at Brown Brothers Harriman takes into account the option markets and applied volatilities and notes Sterling's patterns of volatility.



Key Quotes



"Looking at the volatility implied by the options market exaggerates the low actual volatility. Consider, for example, that the options market implies 4.5% euro-dollar volatility (one-month)."



"The actual volatility 3.1%. This is, of course, more than the term structure or the vol smile can justify."



"It partly reflects fear that volatility may rise sharply. It may also partly reflect dealers reluctance to take on the risks and costs without getting compensated."



"A similar pattern is found in sterling. Implied one-month volatility is just below 4.6%, while actual volatility over the past month is 2.5%, the lowest among the major currencies. The implied one-month yen vol is 4.9% and actual volatility is 3.5%."



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