Hayette Gatfaoui (The University of Paris 1 - Panthéon-Sorbonne)
Abstract
From CAC40 French stock index, we induce the implied market factor’s level through the inversion of a closed form pricing formula for European calls on the CAC40. For this purpose, we assume that the CAC40 index is a disturbed observation of the actual market factor, the market factor's diffusion following a geometric Brownian motion. All the assumptions prevailing in a Black & Scholes world are assumed to hold. Based on daily data, the results show that the level of the implied market factor and its instantaneous return’s volatility are leptokurtic distributed. Having a proxy for the systematic risk, we also study the impact of the implied market factor on a basket of French assets. First, we compute correlations of assets’ returns with the return of the implied market factor, and realize as well a VAR study and a Granger causality test. Second, we estimate regressions of French assets’ returns on the return of the implied market factor. Then, we characterize the prevailing relationship between the weekly rolling volatility of the return of the implied market factor and weekly rolling volatilities of the French asset returns. These two studies lead to mitigated results.
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Publisher Info
Paper provided by EconWPA in its series Risk and Insurance with number
0308004.
Length: 16 pages Date of creation: 25 Aug 2003 Date of revision: Handle: RePEc:wpa:wuwpri:0308004
Note: Type of Document - Acrobat PDF; prepared on PC; to print on HP/PostScript; pages: 16 ; figures: included. We never published this piece. Contact details of provider: Web page: http://129.3.20.41
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