Option-implied volatility spillover indices for FX risk factors

Klaus Grobys and Jari-Pekka Heinonen

Economics Letters, 2017, vol. 157, issue C, 83-87

Abstract: This study employs option price data to back out the implied portfolio volatilities of the dollar and carry trade risk factors of the G-10 currencies. We construct a forward-looking option-implied volatility spillover index. Our findings indicate that the dollar and carry trade risk factors are orthogonal in the first moment and exhibit strong stochastic interrelations in the second expected moment.

Keywords: Volatility spillovers; Currency markets; G10 currencies; Option-implied volatility; Risk factors; Expected volatility; Expected portfolio volatility (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:157:y:2017:i:c:p:83-87

DOI: 10.1016/j.econlet.2017.05.026

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