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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)

  • Julien Chevallier

    (IPAG Lab - IPAG Lab - Ipag)

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
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-01348723
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    References listed on IDEAS

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    1. repec:eee:ecmode:v:74:y:2018:i:c:p:167-185 is not listed on IDEAS
    2. repec:eee:finana:v:54:y:2017:i:c:p:159-175 is not listed on IDEAS

    More about this item

    Keywords

    Asset management; Cross-market index; Factor-DCC; Volatility surprise;

    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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