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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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Implied Correlation and Expected Returns
SSRN Electronic Journal, 2012This paper provides evidence that the implied correlation is an indicator of market-wide risk. From a time-series approach, I analyze whether aggregate implied correlation contains information on future market returns. I document that it explains an important fraction of the variation in aggregate market excess returns, with high implied correlation ...
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Decay of correlation implies strongly mixing property
International Journal of General Systems, 2018This paper proves that a continuous transformation of a probability measure space is mixing in the sense of statistics if and only if it exhibits strongly mixing property, which implies topological...
Yu-Qiong Lei, Min Lin, Tian-Xiu Lu
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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 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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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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The forecasting ability of correlations implied in foreign exchange options [PDF]
Journal of International Money and Finance, 1998 Abstract This paper evaluates the forecasting accuracy of correlations derived from implied volatilities in dollar-mark, dollar-yen, and mark-yen options from January 1989 to May 1995. As a forecast of realized correlation between the dollar-mark and dollar-yen, implied correlation is compared against three alternative forecasts based on time series ...
Jose M. Campa, P. H. Kevin Chang
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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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Investigating Dynamic Correlation in the International Implied Volatility Indexes
2018This paper investigates dynamic interaction among international volatility indexes, consisting of VIX, VSTOXX, VDAX, VFTSE, VNVIXN, VHSI and VKOSPI. This paper also extends the multivariate normal distribution and multivariate student-t distribution based dynamic conditional correlation (DCC) model to a multivariate skew distribution.
Panida Fanpaeng +2 more
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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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