In this paper, we derive a quantitative measure for the attractiveness of buying FX volatility among selected currencies.
We compare FX volatility scores relative to currencies' sensitivity (beta values) to different asset classes in order to determine where to buy FX volatility when for example hedging against falling equity or oil prices.
Global equities : We find that investors that expect a decline in global equity prices should consider buying FX volatility in AUD/JPY, NZD/JPY, AUD/USD or NZD/USD.
Oil prices : Investors exposed to significant changes in oil prices should consider buying FX volatility in AUD/JPY, AUD/USD, NZD/USD, NZD/JPY or USD/SEK.
US interest rates : Investors hedging against higher US interest rates or a steepening of the U.S. 2-Year--U.S. 10-Year yield curve should consider buying FX volatility in AUD/JPY or NZD/JPY.
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