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The cross-market index for volatility surprise

Sofiane Aboura and Julien Chevallier
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Sofiane Aboura: DRM - Dauphine Recherches en Management - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique

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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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Published in Journal of Asset Management, Palgrave Macmillan, 2014, 15 (1), pp.7-23. ⟨10.1057/jam.2014.5⟩

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DOI: 10.1057/jam.2014.5

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