Analyzing the Volatility Transmission on the Eoniaswap Market

AbstractGlobally, the interest rate swaps have became the most traded financial derivatives on the OTC markets in the last decade. In the Eurozone banking system swap contracts with the Eonia overnight interbank interest rate as underlying asset form the most liquid interbank market. But, the liquidity problems registered on the international markets have increased the volatility of Eoniaswap rates especially after September 2008 and also their spread form the European Central Bank policy rate. Applying long memory tests we have identified a persistent behavior of the Eoniaswap rates at different maturities. Using the Johansen and the Gregory-Hansen cointegration tests we found the existence of long run equilibrium relationships between Eonia and the Eoniaswap rates, that maintain in the presence of structural breaks in the cointegration relationship. Finally, we have estimated ARFIMA-FIGARCH models in order to capture the volatility transmission between Eoniaswap rates at different maturities