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German Bund Futures Volatility Forecast (12/10/2010)

The German Bund futures is considered to be one of the safest asset in the world. Such a reputation comes from the great stability that the Germany economy has. Therefore, a rise in the price of bund futures indirectly suggests that investors and traders are not anymore willing to put their money into stocks.

As we can see from the chart on the left the TGARCH volatility (assumed with a generalised error distribution) appears to be EXTREMELY LOW .Specifically, since the volatility is mean-reverting it is reasonable to believe that soon there will be a rise which will drive, more probably, the market down. However, the German bund,given the current economic environment, is still a popular asset amongst investors and therefore it would not be surprising to see a prolonged low volatility period.

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