Implied correlation indices and volatility forecasting

Holger Fink and Sabrina Geppert

Applied Economics Letters, 2017, vol. 24, issue 9, 584-588

Abstract: Implied volatility indices are an important measure for ‘market fear’ and well-known in academia and practice. Correlation is still paid less attention even though the CBOE started to calculate implied correlation indices for the S&P500 in 2009. However, the literature especially on cross-country dependencies and applications is still quite thin. We are closing this gap by constructing an implied correlation index for the DAX and taking a deeper look at the (intercontinental) relationship between equity, volatility and correlation indices. Additionally, we show that implied correlation could improve implied volatility forecasting.

Date: 2017
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DOI: 10.1080/13504851.2016.1213357

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