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I am trying to figure out how to turn implied yield volatility of a short-term interest rate into implied price volatility. Is there an equation to do this?

I have come across the equation for a bond: (price_vol = yield_vol*modified_duration*forward_yield) But, I do not believe this is correct for a STIR option.

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  • $\begingroup$ This seems to work very well for at-the-money options: yield_vol*(100-futures_price) $\endgroup$ – Stu May 6 '14 at 15:45
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percent price change ≈ −modified duration × yield change

Example

  • Consider a bond whose modified duration is 11.54 with a yield of 10%.
  • If the yield increases instantaneously from 10% to 10.1%, the approximate percentage price change will be:

−11.54 × 0.001 = −0.01154 = −1.154%.

Source

https://www.csie.ntu.edu.tw/~lyuu/finance1/2008/20080227.pdf

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