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Credit-Implied Equity Volatility – Long-Term Forecasts and Alternative Fear Gauges

Byström, Hans LU (2015) In Journal of Futures Markets 35(8). p.753-775
Abstract
This study discusses how to compute and forecast long-term stock return volatilities, typically with a five-year horizon or longer, using credit derivatives, and how such volatilities can be used in different areas ranging from the valuation of employee stock options and other long-term derivatives to the construction of market-based fear gauges in selected countries or market segments. In the empirical part of the paper I focus on the European financial sector and find the credit-implied volatilities and fear gauges to behave well. The forecasting accuracy of the credit-implied volatilities is found to be better than that of horizon-matched historical volatilities. (c) 2014 The Authors. Journal of Futures Markets Published by Wiley... (More)
This study discusses how to compute and forecast long-term stock return volatilities, typically with a five-year horizon or longer, using credit derivatives, and how such volatilities can be used in different areas ranging from the valuation of employee stock options and other long-term derivatives to the construction of market-based fear gauges in selected countries or market segments. In the empirical part of the paper I focus on the European financial sector and find the credit-implied volatilities and fear gauges to behave well. The forecasting accuracy of the credit-implied volatilities is found to be better than that of horizon-matched historical volatilities. (c) 2014 The Authors. Journal of Futures Markets Published by Wiley Periodicals, Inc. Jrl Fut Mark 35:753-775, 2015 (Less)
Please use this url to cite or link to this publication:
author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
credit default swaps, implied volatility, CreditGrades, VIX, fear gauge, long-term forecast
in
Journal of Futures Markets
volume
35
issue
8
pages
46 pages
publisher
John Wiley & Sons
external identifiers
  • wos:000357887300005
  • scopus:84936985939
ISSN
1096-9934
DOI
10.1002/fut.21701
language
English
LU publication?
yes
id
3cc847ee-5f1f-40f8-baa2-bc071d7b1d97 (old id 7779803)
alternative location
http://project.nek.lu.se/publications/workpap/papers/wp14_34.pdf
date added to LUP
2015-09-18 15:58:42
date last changed
2017-01-01 03:41:57
@article{3cc847ee-5f1f-40f8-baa2-bc071d7b1d97,
  abstract     = {This study discusses how to compute and forecast long-term stock return volatilities, typically with a five-year horizon or longer, using credit derivatives, and how such volatilities can be used in different areas ranging from the valuation of employee stock options and other long-term derivatives to the construction of market-based fear gauges in selected countries or market segments. In the empirical part of the paper I focus on the European financial sector and find the credit-implied volatilities and fear gauges to behave well. The forecasting accuracy of the credit-implied volatilities is found to be better than that of horizon-matched historical volatilities. (c) 2014 The Authors. Journal of Futures Markets Published by Wiley Periodicals, Inc. Jrl Fut Mark 35:753-775, 2015},
  author       = {Byström, Hans},
  issn         = {1096-9934},
  keyword      = {credit default swaps,implied volatility,CreditGrades,VIX,fear gauge,long-term forecast},
  language     = {eng},
  number       = {8},
  pages        = {753--775},
  publisher    = {John Wiley & Sons},
  series       = {Journal of Futures Markets},
  title        = {Credit-Implied Equity Volatility – Long-Term Forecasts and Alternative Fear Gauges},
  url          = {http://dx.doi.org/10.1002/fut.21701},
  volume       = {35},
  year         = {2015},
}