Hi, I was wondering whether there is any literature on business cycle drivers of interest rate option volatility. For instance, many people view the PMI new orders-inventory ratio as a leading business cycle indicator for US Treasuries. Is there something similar for interest rate option vols (in any currency)?The institutional setup in the US (eg Freddie Mac etc) means that household behaviour would be the major driver of US vols. Are there markets where corporate hedging is more dominant in the cap/floor and swaption market and where their activity is linked to the business cycle? Would appreciate any academic references outlining theoretical arguments.Cheers.

QuoteOriginally posted by: hongjiren2000Hi, I was wondering whether there is any literature on business cycle drivers of interest rate option volatility. For instance, many people view the PMI new orders-inventory ratio as a leading business cycle indicator for US Treasuries. Is there something similar for interest rate option vols (in any currency)?The institutional setup in the US (eg Freddie Mac etc) means that household behaviour would be the major driver of US vols. Are there markets where corporate hedging is more dominant in the cap/floor and swaption market and where their activity is linked to the business cycle? Would appreciate any academic references outlining theoretical arguments.Cheers.There's a couple of hedge funds that made a lot of money trading short dated swaptions around economic annnouncements, I'd like to hear about academic research into the drivers of rates vol as well.

There is Christian Dorion from HEC Montreal who researches on this topic.http://papers.ssrn.com/sol3/cf_dev/AbsB ... =726647You may want to take a look at the second paper.