The cross-market index for volatility surprise

Sofiane Aboura and Julien Chevallier

Journal of Asset Management, 2014, vol. 15, issue 1, No 2, 7-23

Abstract: Abstract This article proposes a new empirical methodology for computing a cross-market volatility index – coined CMIX – based on the Factor-Dynamic Conditional Correlation (DCC) model, implemented on volatility surprises. This approach solves problems in treating high-dimensional data and estimating time-varying conditional correlations. We provide an application to 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, because it provides a simple way to hedge multi-asset portfolios with derivatives contracts written on the CMIX.

Keywords: cross-market index; Factor-DCC; volatility surprise; asset management (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1057/jam.2014.5

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