The Term Structure of Short-Term Interest Rate Futures Volatility

The maturity effect states that the volatility of futures prices should increase as the contract approaches expiration. Numerous studies have investigated this effect for different asset classes. However, the presence of a maturity effect in short term interest rate (STIR) futures has usually only been studied considering these within a wider set of financial futures, without further consideration of their special features. Our study looks at the presence of maturity effects in STIR futures by analyzing the term structure of the volatility of the most worldwide traded contracts, taking into consideration their specific characteristics. We provide empirical evidence on the positive relation between volatility and time to maturity and show how these results relate to models of the term structure of interest rates