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Cross-market volatility index with Factor-DCC

Sofiane Aboura () and Julien Chevallier

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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: Volatility surprise; Factor-DCC; Asset management; Cross-market index (search for similar items in EconPapers)
Date: 2015-12-01
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Published in International Review of Financial Analysis, Elsevier, 2015, 42 (132–140), ⟨10.1016/j.irfa.2014.06.003⟩

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DOI: 10.1016/j.irfa.2014.06.003

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