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Cross-market volatility index with Factor-DCC

Author

Listed:
  • Sofiane Aboura

    (CEREG - Centre de Recherche sur la gestion et la Finance - DRM UMR 7088 - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique, DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

  • Julien Chevallier

    (IPAG Lab - IPAG Lab - IPAG Business School)

Abstract

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.

Suggested Citation

  • Sofiane Aboura & Julien Chevallier, 2015. "Cross-market volatility index with Factor-DCC," Post-Print halshs-01348723, HAL.
    • Handle: RePEc:hal:journl:halshs-01348723
    DOI: 10.1016/j.irfa.2014.06.003
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    Cited by:

    1. Tsuji, Chikashi, 2018. "Return transmission and asymmetric volatility spillovers between oil futures and oil equities: New DCC-MEGARCH analyses," Economic Modelling, Elsevier, vol. 74(C), pages 167-185.
    2. Aboura, Sofiane & Chevallier, Julien, 2017. "A new weighting-scheme for equity indexes," International Review of Financial Analysis, Elsevier, vol. 54(C), pages 159-175.

    More about this item

    Keywords

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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G01 - Financial Economics - - General - - - Financial Crises
    • F15 - International Economics - - Trade - - - Economic Integration

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