TC ICAP’s Parameta Solutions to introduce family of interest rate swap volatility indices

The business asserts that banking on model-free implied volatility estimates provides superior predictive power over other volatility forecasting measures.

TP ICAP’s data and analytics division, Parameta Solutions, has launched a new family of interest rate volatility (IRSV) indices in a bid to provide robust and transparent daily indices in interest rates swap markets. 

Anand Venkataraman, head of benchmark and indices product management at Parameta Solutions, explained that as IRSV indices are built on a theoretical foundation when measuring interest rate swap volatility, it allows for a model-free measure of spot implied volatility for market participants.

Venkataraman added: “Predictive power of model-free implied volatility estimates have been shown to have superior predictive power over other commonly used volatility forecasting measures. Such an approach to create IRSV indices will be able to assist market participants with accurate interest rate volatility measures, both when making investment decisions and when measuring investment risks.”

In practice, the indices are set to be powered by ICAP data and analytics – which includes a range of interest rate products, such as exotic options and short and long-term interest rate swaps.

Parameta Solutions will administer, calculate and disseminate the IRSV indices. According to the business, “IRSV indices provide market participants with a forward-looking implied volatility measure for some of the most liquid option expiry, swap tenor combinations in the EUR and GBP interest rate swap markets”.

The firm provides users with pre- and post-trade analytics, as well as unbiased OTC content and proprietary data, price discovery insights, and risk management services. Its offering also includes benchmark and indices, and the business was recently recognised as an EU benchmark administrator by ESMA.
 
The post-trade offering helps users control their counterparty and regulatory risks. The tools manage balance-sheet exposure and also provide compression and optimisation services.

Will Ferguson, senior managing director ICAP G10 Rates, said: “Central Banks hiking policy rates rapidly from near zero levels to combat rising inflation, and uncertainty driven by other regional events has created opportunity and volume in our interest rates business. A partnership with Parameta Solutions to develop innovative solutions like the IRSV indices will facilitate new liquidity opportunities and help us enhance our leadership position.”

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