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Cross-market volatility index with Factor-DCC

Sofiane Aboura () and Julien Chevallier

International Review of Financial Analysis, 2015, vol. 42, issue C, 132-140

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.

Keywords: Cross-market index; Factor-DCC; Volatility surprise; Asset management (search for similar items in EconPapers)
JEL-codes: C32 G01 F15 (search for similar items in EconPapers)
Date: 2015
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Working Paper: Cross-market volatility index with Factor-DCC (2015)
Working Paper: Cross-market volatility index with Factor-DCC (2015)
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