Implied correlation indices and volatility forecasting |
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Authors: | Holger Fink Sabrina Geppert |
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Institution: | 1. Institute of Statistics, Ludwig-Maximilians-Universit?t München, Munich, Germanyholger.fink@stat.uni-muenchen.de;3. Institute of Statistics, Ludwig-Maximilians-Universit?t München, Munich, Germany |
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Abstract: | Implied 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. However, the literature especially on cross-country dependencies and applications is still quite thin. We are closing this gap by constructing an implied correlation index for the DAX and taking a deeper look at the (intercontinental) relationship between equity, volatility and correlation indices. Additionally, we show that implied correlation could improve implied volatility forecasting. |
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Keywords: | Implied correlation implied volatility correlation indices implied volatility forecasting |
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