Volatility discovery: Can the CDS market beat the equity options market?

S. Forte Arcos, Lidija Lovreta

Research output: Indexed journal article Articlepeer-review

8 Citations (Scopus)

Abstract

In this study, we derive a CDS implied equity volatility index from highly liquid one-year contracts in the Eurozone, and for the inclusive period 2008–2014. We analyze the relationship between this volatility index and the VSTOXX 12 M within a fractionally cointegrated vector autoregressive (FCVAR) model. Our results confirm a stationary long-run equilibrium relationship between the two volatility indices in which the CDS implied index plays the leading role.

Original languageEnglish
Pages (from-to)107-111
Number of pages5
JournalFinance Research Letters
Volume28
DOIs
Publication statusPublished - Mar 2019
Externally publishedYes

Keywords

  • CDS market
  • Fractional cointegration
  • Implied volatility
  • Options market
  • Volatility discovery

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