Credit Variance Swaps and Volatility Indexes

Antonio Mele and Yoshiki Obayashi
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Yoshiki Obayashi: Applied Academics LLC

No 13-24, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Credit volatility correlates quite modestly with equity volatility. Currently, only backward-looking indexes for credit volatility exist. We derive model-free indexes of expected CDS index spread volatility that rely on CDS index option prices, which reect the fair value of dedicated credit variance swaps that are forward-looking in nature. We consider both percentage and basis point expected volatility, and show that basis point volatility can be priced in a model- free format even in the presence of jumps.

Keywords: Credit Default Swap Volatility; Credit Variance Swaps; Model-Free Pricing; VIX Index; Basis Point Variance; Quadratic Contracts (search for similar items in EconPapers)
JEL-codes: E4 G11 G12 G13 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2013-04
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1324

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