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

S. Forte Arcos; Lidija Lovreta

doi:10.1016/j.frl.2018.04.015

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

S. Forte Arcos
, Lidija Lovreta^*

^*Corresponding author for this work

Research output: Indexed journal article › Article › peer-review

10 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 language	English
Pages (from-to)	107-111
Number of pages	5
Journal	Finance Research Letters
Volume	28
DOIs	https://doi.org/10.1016/j.frl.2018.04.015
Publication status	Published - Mar 2019

Keywords

CDS market
Fractional cointegration
Implied volatility
Options market
Volatility discovery

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10.1016/j.frl.2018.04.015

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title = "Volatility discovery: Can the CDS market beat the equity options market?",

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.",

keywords = "CDS market, Fractional cointegration, Implied volatility, Options market, Volatility discovery",

author = "\{Forte Arcos\}, S. and Lidija Lovreta",

note = "Publisher Copyright: {\textcopyright} 2018 Elsevier Inc.",

year = "2019",

month = mar,

doi = "10.1016/j.frl.2018.04.015",

language = "English",

volume = "28",

pages = "107--111",

journal = "Finance Research Letters",

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T1 - Volatility discovery

T2 - Can the CDS market beat the equity options market?

AU - Forte Arcos, S.

AU - Lovreta, Lidija

PY - 2019/3

Y1 - 2019/3

N2 - 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.

AB - 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.

KW - CDS market

KW - Fractional cointegration

KW - Implied volatility

KW - Options market

KW - Volatility discovery

UR - https://www.scopus.com/pages/publications/85046734793

U2 - 10.1016/j.frl.2018.04.015

DO - 10.1016/j.frl.2018.04.015

M3 - Article

AN - SCOPUS:85046734793

SN - 1544-6123

VL - 28

SP - 107

EP - 111

JO - Finance Research Letters

JF - Finance Research Letters

ER -

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

Abstract

Keywords

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