Information in Subsets of Interest Rate Derivatives : Expectations and Volatility

We show that term premia rise when volatility increases in Brazil, whereas the literature shows that volatility is negatively correlated with term premia in advanced economies. We analyze how marketexpectations differ for a subset of options and futures and whether those expectations accurately predict future interest rates. The forecasting capacity of market expectations obtained from out-of-the-money options was better than obtained from the futures market. We also develop a new term structure model with stochastic volatility