Cross-market volatility index with Factor-DCC
Aboura, Sofiane; Chevallier, Julien (2015), Cross-market volatility index with Factor-DCC, International Review of Financial Analysis, 42, p. 132–140. 10.1016/j.irfa.2014.06.003
TypeArticle accepté pour publication ou publié
Journal nameInternational Review of Financial Analysis
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Abstract (EN)This paper proposes a new empirical methodology for computing a cross-market volatility index – coined CMIX – based on the Factor DCC-model, implemented on volatility surprises. This approach solves both problems of treating high-dimensional data and estimating time-varying conditional correlations. We provide an application to a multi-asset market data composed of equities, bonds, foreign exchange rates and commodities during 1983–2013. This new methodology may be attractive to asset managers, since it provides a simple way to hedge multi-asset portfolios with derivative contracts written on the CMIX.
Subjects / KeywordsCross-market index; Factor-DCC; Volatility surprise; Asset management
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