We identify a global risk factor in the cross-section of implied volatility returns in currency markets. A zero-cost strategy that buys forward volatility agreements with downward sloping implied volatility curves and sells those with upward slopes - volatility carry strategy - generates...

The currency options markets, both the dollar denominated options markets and the cross-currency options markets, carry important economic information about the evolution of exchange rates and the pricing of risk. However, it is challenging to integrate all this information together. This paper...