Arbeitspapier

Credit-Implied Forward Volatility and Volatility Expectations

We show how one can back out implied forward volatility term structures from credit default swap spreads. Such forward stock volatility term structures are useful for instance in forward start option pricing. We find the term structure to be downward-sloping, and the credit market's volatility forecasts tend to vary more across time than across maturities. Long-term volatility expectations, in turn, are found to be low and stable while short-term expectations are higher and more volatile. The volatility expectation's mean-reversion rate, finally, indicates that the credit market expects volatility shocks in the equity market to last for several years.

Sprache
Englisch

Erschienen in
Series: Working Paper ; No. 2015:34

Klassifikation
Wirtschaft
Financial Crises
General Financial Markets: General (includes Measurement and Data)
Thema
CDS
implied volatility term structure
forward volatility
forward start options

Ereignis
Geistige Schöpfung
(wer)
Byström, Hans
Ereignis
Veröffentlichung
(wer)
Lund University, School of Economics and Management, Department of Economics
(wo)
Lund
(wann)
2015

Handle
Letzte Aktualisierung
20.09.2024, 08:22 MESZ

Datenpartner

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Objekttyp

  • Arbeitspapier

Beteiligte

  • Byström, Hans
  • Lund University, School of Economics and Management, Department of Economics

Entstanden

  • 2015

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