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Implied correlation indices and volatility forecasting
Applied Economics Letters, 2016ABSTRACTImplied volatility indices are an important measure for ‘market fear’ and well-known in academia and practice. Correlation is still paid less attention even though the CBOE started to calculate implied correlation indices for the S&P500 in 2009.
Holger Fink, Sabrina Geppert
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2008
Introduction In previous chapters we have introduced and analysed the standard market model for valuing synthetic CDOs. In this and the next chapter we examine the natural consequences of what happens when a bespoke, illiquid market becomes standardised and highly liquid.
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Introduction In previous chapters we have introduced and analysed the standard market model for valuing synthetic CDOs. In this and the next chapter we examine the natural consequences of what happens when a bespoke, illiquid market becomes standardised and highly liquid.
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Implied Correlation Index: A New Measure of Diversification
SSRN Electronic Journal, 2003AbstractMost approaches in forecasting future correlation depend on the use of historical information as their basic information set. Recently, there have been some attempts to use the notion of “implied” correlation as a more accurate measure of future correlation.
Vasiliki D. Skintzi +1 more
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Option-Implied Correlations and the Price of Correlation Risk
SSRN Electronic Journal, 2012Link to the paper: http://dx.doi.org/10.2139/ssrn.2166829 The data contains option-implied and realized equicorrelation (IC and RC) estimates for S&P500 components from 1996 to 12/2019. We propose a direct and intuitive test by comparing option-implied correlations between stock returns (obtained by combining index option prices with prices of ...
Maenhout, Pascal +2 more
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Central Bank Interventions and Implied Exchange Rate Correlations
SSRN Electronic Journal, 2006Abstract This paper examines the effects of the foreign exchange market interventions by the Bank of Japan on the ex ante correlations between the JPY/USD, EUR/USD, and GBP/USD exchange rates. The correlation estimates used in the analysis are derived from the market prices of OTC currency options.
Jussi Nikkinen, Sami Vähämaa
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Modeling the Dynamics of Correlations among Implied Volatilities
Review of Finance, 2012Abstract Implied volatility (IV) reflects both expected empirical volatility and also risk premia. Stochastic variation in either creates unhedged risk in a delta hedged options position. We develop EGARCH/DCC models for the dynamics of volatilities and correlations among daily IVs from options on twenty-eight large cap stocks.
Robert Engle, Stephen Figlewski
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Estimation of Theory-Implied Correlation Matrices
SSRN Electronic Journal, 2019Correlation matrices are ubiquitous in finance. Some key applications include portfolio construction, risk management, and factor/style analysis. Correlation matrices are usually estimated from historical empirical observations or derived from historically estimated factors.
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Warren's physical correlate theory: Correlation does not imply causation
Behavioral and Brain Sciences, 1981Warren's major contention is that judgments of subjective magnitude are not possible, and therefore subjects base such judgments upon physical correlates of the dimension in question. It would appear that Warren's theory will almost surely fail as a comprehensive model, even though it does provide a heuristic account of judgments of loudness and ...
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Implied Correlations: Smiles or Smirks?
The Journal of Derivatives, 2008Developing a pricing model for CDOs that can actually be implemented is a very challenging problem. In a credit portfolio with N obligors, there are N individual default probabilities, (N2 - N)/2 correlations, and N recovery rates, all of which are important determinants of the portfolio loss distribution.
Senay Agca, Deepak Agrawal, Saiyid Islam
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Implied rate correlations and policy expectations [PDF]
, 2013 Certain financial instruments provide information on expectations of future interest rate movements. One relatively new instrument is yield curve options, which allow investors to take financial positions on a range of possible future interest rates. These options can shed light on the views of financial markets regarding future monetary policy at a ...
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